Iowa Barter seeks to educate businesses on value of trade exchanges
When Michael Garner was relocating his Elegant Touch Dry Cleaning store in Urbandale, he could have paid several hundred dollars for a sign shop to letter his store window. Instead, he traded some dry cleaning business with Sign Max, a Des Moines sign company, saving some cash and possibly bringing in some new customers.
Brokering the exchange was Bill Downing, owner of Urbandale-based Iowa Barter LLC, a member of the International Trade Exchange Corp. The network of independent brokers generates more than $200 million in trade transactions annually.
Downing, who juggles his time between Iowa Barter and Hollywood Harry’s, an Urbandale hair salon he launched last year, said his biggest challenge remains educating small to medium-sized businesses about the benefits of bartering. With a 20-year background in sales, the Chicago transplant started the franchise barter business last spring.
In the same way that advertising, coupons, discounts and promotions are tools to boost sales, barter is an additional means that businesses can use to build incremental revenues, Downing said. Iowa Barter, which receives a 5 percent commission on each trade, facilitates the exchanges by creating a pool of goods and services that businesses can trade, rather than having to seek direct trades, which are both difficult to find and hard to equalize in value.
Barter is “kind of like exercise,” he said. “For people that use it, it’s a wonderful thing. It’s ideal for anyone who has excess capacity, idle inventory or is looking for more sales.”
Barter transactions can make sense for businesses on an ongoing basis, as well as for one-time deals, Downing said, such as moving a supply of surplus inventory that would otherwise be difficult to sell. In particular, it’s well suited to businesses that have relatively high profit margins
“It worked pretty well for us,” Garner said. “We’ve been able to trade out some lettering work for dry cleaning, and that’s the only thing that I’ve traded out at this point. It’s just a simple trade and it works pretty well.”
Garner, who said he doesn’t see any downside to bartering, said he continues to be an ITEX member and is looking for additional trade opportunities.
According to a recent study by the National Association of Trade Exchanges, there are approximately 500 retail barter exchanges in North America, which handle trade transactions estimated at more than $2 billion annually. The association estimates that the average broker handles more than $6 million in annual trade volume.
Larger Midwest cities, including Chicago, Kansas City and Omaha, have mature trade exchanges handling more significant volumes. The top ITEX office in Omaha handles more than $4 million in barters annually, with customers averaging about $14,000 per year in bartering services.
The pace is admittedly slower in Des Moines, which Downing attributes in part to the conservative nature of Iowans and his own personal limitations— he’s a single father who must be at home with his 5-year-old daughter until she starts full-day school.
Transactions are based on trade dollars, and goods or service are traded using exchange drafts that look just like checks.. Under ITEX rules, anything that’s bartered must be offered at the normal retail price. Items valued at more than $5,000 can be offered at a barter price plus an additional cash price.
The biggest benefit to ITEX members, he said, is access to an online directory of services available through members across the country, as well as a “trade flash” area in which items needed or offered for trade are posted by members. For business owners who want to take a trip to Florida, for instance, it provides a way to access vacation properties and recreational opportunities that can be paid for in bartered business.
To generate more members to kick-start more barter transactions in Greater Des Moines, Downing is temporarily waiving the one-time membership fee of $995. Members pay a monthly association fee of $20 cash and $10 in trade dollars.
For more information on bartering, call Iowa Barter at 401-2332, or visit www.itex.com.
TAX TREATMENT OF BARTER TRANSACTIONS
Passage of the Tax Equity and Fiscal Responsibility Act of 1982 helped legitimize the business of bartering. The act classified barter companies as third-party record-keepers, with the same fiduciary obligations as banks and stockbrokers. Income from bartering is taxable in the year in which the business receives the goods or services, according to the Internal Revenue Service. Generally, the income is reported on Schedule C, Profit or Loss from Business Form 1040. Trade or barter exchanges are required to send their members annual 1099B forms.