Growth | February 2010 | By Daniel P. Smith

A Fair Trade

Bartering gains momentum as economy sags and businesses seek ways to retain cash.

In addition to helping conserve cash, bartering often leads to additional exposu
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Twenty years ago, Toni Foley began bartering. These days, she won’t run her restaurant—five-year-old Eastside Café in Fairport, New York—without the practice. Foley has used her barter dollars for carpeting, trash disposal, a storage unit, and for customer gifts—all while conserving cash.

“I see nothing but benefits with bartering,” Foley says. “I get to network with other local businesses, gain exposure to new customers, and have access to a variety of products and services for the restaurant and myself.”

An age-old practice spanning centuries and continents, bartering, the simple swapping of one service or product for another, is enjoying a contemporary resurgence spurred by the economy’s tumult. As restaurants struggle with declining customer counts and seek ways to stir traffic and boost revenue amid fixed costs, bartering is gaining increased appeal and acceptance.

Though traditional bartering takes place between two parties, third-party bartering companies witnessed growing membership numbers in recent years and spearheaded a barter renaissance. Unlike one-on-one bartering, members of exchanges are not obligated to barter directly with a seller. Rather, members can have their account credited with fair market value for a sale and then use those credits for future purchases. In effect, the exchange creates a savings account based on trade dollars versus traditional currency.

“The challenge with one-on-one bartering is that two parties are going to need each other’s services at the same level, at the same time,” says Anthony Donnelly of the Merchants Barter Exchange, a barter-bank with offices throughout the U.S.

The bartering exchanges, which often collect a membership charge and a small fee for each transaction, do much to create a collegial atmosphere of like-minded business owners. The exchanges match clients needing services, provide exposure for businesses, and maintain records, an essential feature since the IRS demands “the fair market value of the goods and services exchanged be reported as income.” With a membership pool that crisscrosses various industries, restaurant owners can trade their tables, catering, or party business for other member services, such as advertising or landscaping.

“It’s as simple as an operator phoning us with their need and our brokers finding the business to fill that need,” Donnelly says.

John Kubisiak, owner of three Toppers Pizza locations in Wisconsin, did not know such exchanges existed when he opened his first Toppers location in 2005. Two years later Kubisiak joined the bartering service International Monetary Systems (ims), a publicly traded, Wisconsin-based barter company serving 50 U.S. markets.

“The upside of what we were looking at was clear,” he says. “The biggest risk I saw was the [$695] membership fee, but operators are rolling the dice on initiatives much more expensive than this every day.”

Barter dollars started coming into Toppers immediately and Kubisiak has since used his credits for equipment maintenance, window cleaning, and employee incentives, including spa and restaurant gift certificates. He enjoyed a pair of Caribbean vacations on barter as well.

Yet, it is the aptly titled “barter leverage” that delivers the principle advantage for operators. For most restaurants, the cost to produce a menu item runs about 20–40 cents on the dollar. But operators are getting barter on the fair market value of their product, earning a 60–80 percent markup and a built-in profit on all trades.

“Rather than opening your checkbook and paying the retail cost for a service or product, you’re buying the service or product at the wholesale cost of your products,” says Don Mardak, president of IMS.

As an added benefit, operators gain new customers. After two decades in the restaurant industry, Foley is convinced that her barter relationships have yielded a better return than any advertisement. She describes her Eastside Café as “a little treasure that needs to be found.” Barter, which she practices through the IMS, helps others discover the eatery.

“Barter’s provided services and products that help me run the restaurant efficiently, but, most importantly, it’s driven business into my store,” Foley says. “Other members of the exchange know they can use their barter dollars here and they’re passing up other places on their way in.”

Before joining any barter exchange, however, an operator should make sure he can afford to offer services without receiving cash and that other members have useful services. The operator should also examine the exchange’s credentials and consult members to assess their experiences.

Operators are getting barter on the fair market value of their product, earning a 60–80 percent markup and a built-in profit on all trades.

“There’s no need to rush into a hasty decision. Bartering is a long-term, strategic tool, not a one-time deal,” Donnelly says, adding that operators should also seek a company that engages exclusively in 100-percent barter at the same price as cash rather than half-cash, half-barter options that minimize leverage.

To achieve a healthy, manageable balance between barter and cash, Mardak suggests restaurant operators limit their barter to 10–15 percent of transactions.

“You should never let your account get so large that you’re not capitalizing on the services available,” he says. “Earn your trade dollars and then start to get back the things you need.”

The primary headache, barter veterans say, resides in those few members who attempt to take advantage of the relationship by restricting or limiting barter purchases. In such instances, Foley reminds the business owner that the barter dollars are as good as cash and that one needs to give as much as they receive. In unresolved cases, Foley has contacted her barter exchange for a swift resolution.

“You’ll always have those folks who try to take advantage of a good thing,” she says, noting that the vast majority of her dealings have been pleasant, fair, and reciprocal.

Though bartering has its limitations and its lingering skeptics, it has nonetheless proved itself to be a valuable tool for many restaurant operators seeking to sustain an efficient, well-maintained workplace, store cash in reserves, and attract new customers.

“Cash is still king and those of us involved in bartering recognize this, but bartering has its place and some strong benefits to offer,” Donnelly says.