Bartering gives small businesses a chance to boost their purchasing power and build their customer base
BY JOHN LORINC

Shlomo Buchler runs one of those small businesses that operates at the very base of the economic food chain. He and his nine employees fix and change locks. As the 34-year-old Montreal native puts it, "at some point, everybody needs a locksmith."

It's a word-of-mouth, fast-in-fast-out trade with little need for frills such as salesmanship, so he doesn't do much advertising. But last year, Buchler decided to fork out $399 as a one-time membership fee to join the Barter Network. He'd heard about the organization from friends who knew David Holland, co-founder of the seven-year told trading outfit.

The membership means that the brokers who work for Holland are promoting his services to the 2,000 other businesses that belong to the network. Buchler, in turn, is on the prowl for something useful among all the goods and services those same firms provide. When he spots something he needs-for example, train tickets or vouchers to a restaurant-he'll draw down some of his accumulated "Barter Network dollars" from his own account. And if another member wants their locks changed, they'll spend theirs, meaning he'll go off and do the work, taking payment in the same internal Barter Network currency. One BN dollar is worth one real dollar, and all bartered goods are listed-and taxed-at their true retail price.

No legal tender ever changes hands. Nonetheless, adds Holland, "we bring these companies new business."

Founded by Patti Falus and Holland in 2000, the Barter Network is a small, fast-paced, promotion-minded firm that operates out of a non-descript light industrial building in Toronto's design district. The offices are jammed with piles of their clients' wares - gift baskets, framed hockey pictures, corporate art, and all species of branded promotional incentives. A bank of brokers work the phones in the bullpen, while the sales team, led by Holland, hustles up new clients. He claims the company orchestrated $60 million in trades last year. It charges a 5% cash commission on the retail value of each deal, which translates into about $3 million in fees. In other words, if Buchler spends $150 at a restaurant listed with the Barter Network, the restaurant remits $7.50 in real currency as a trading fee. The brokers don't earn commissions but do benefit from profit-sharing bonuses.

It's not the only organization that offers bartering services. In the age of the Internet and business-to-business electronic networking, such virtual exchanges have popped up all over cyberspace. They run the gamut from grassroots "freecycling" exchanges (www.freecycle.org claims to have 3.2 million members in 3000 communities, and allows participants to list possessions they want to give away or obtain those being donated by other members) to internationally franchised barter outfits and firms like BN, which focuses its marketing efforts on Greater Toronto, Ottawa and Montreal. Not surprisingly, Holland advises small business to be wary of no-fee barter networks. "You get what you pay for."

Some also push the limits of legality, such as Barter Connection International, a Durham, Ontario, firm shut down in 2000 by provincial regulators for trying to sell consumers car insurance policies without a license. Another outfit, Tri-Continental Exchange, was slapped with a $75,000 fine and a cease-and-desist order, for the same offense.

Nor, as Holland says, should any trade-minded small business expect to barter their way out of paying taxes. He can literally cite chapter and verse of the tax code that says such deals are subject to income and sales taxes. In other words, if Buchler gets any business through the Barter Network and takes payment in the form of some other good, he nevertheless has to report the revenue as income.

Much of this in-kind economy is very localized, and the commodities with currency include radio ad slots, tickets to entertainment or sporting events, restaurant vouchers, gift certificates and professional services ranging from general contracting to accounting-anything small companies might need to purchase for business. Need to send flowers to a long-time employee, or take a prospective client out for a get-to-know-you meal? Willing to ante up your own goods by way of payment? That's the sweet spot.

Holland says low margin goods, such as electronics, tend not to be easily bartered. The rule of thumb is that the value of a traded good is its retail price. "This works because you're selling at your profit margin," says Holland, who denies that bartering is the last resort of companies looking down the barrel of bankruptcy. "The revenues they earn from these new sales are used to offset cash expenses."

Each company gets its own account and line of credit, so members can draw down or build up their balance, depending on how much trading they do. Barter Network also claims that it vets firms before offering membership, and tries not to dilute the in-kind value of their goods and services by adding too many of a particular category of company. Still, it's a buyer beware kind of environment: customer accounts aren't insured by some external agency like the Canadian Deposit Insurance Corporation, so if Barter Network goes south tomorrow, the balances in its member accounts are worthless.

Holland doesn't expect that to happen, and the reason is that he pushes his brokers encourage their clients to trade, trade, trade. Which is, after all, how the company makes its money-the real kind.