NATION In ailing economy, barter picks up among companies

Bartering is becoming crucial to more businesses.
SAN JOSE KNIGHT RIDDER NEWSPAPERS
SAN JOSE, Calif. -- To get her doggie day-care business up and running, Dyana Klein needed to hire an accountant to do her bookkeeping and a programmer to build a software system. But like most new entrepreneurs, she was short on cash.
In May, she put an ad in the barter section of craigslist, one of the Bay Area's largest online community bulletin boards. Now, Klein is getting $25,000 worth of services in exchange for doggie day care.
"I would not be able to afford them without the trade," said Klein, laughing with obvious delight. Her business, Run 'Em Ragged Doggie Daycare, opened in August. "When you're starting a new business, you have to try to save every dollar you can."
An increasing number of entrepreneurs such as Klein -- as well as florists, hoteliers and plumbers -- are making barter a part of their business model. From barter exchanges to informal networks, the world's oldest form of trade is helping to buoy businesses in Silicon Valley and around the nation as they weather an ailing economy.
Barter exchanges
And barter, which has had a reputation as an underground economy where goods and services are traded untaxed, is coming into its own. The barter world boasts at least 600 above-ground barter exchanges worldwide -- half of them in the United States.
The International Reciprocal Trade Association in Rochester, N.Y., estimates the worldwide barter industry, in which formal exchanges broker deals between businesses, to be about $8 billion in 2001. But other estimates put U.S. barter alone at $12 billion a year.
What's certain is that barter exchanges locally and in the United States report greater trade volume and higher membership numbers the past two years as the economy hit the doldrums. At Sacramento, Calif.-based Itex, the nation's largest barter exchange, members are conducting 30 percent more trades with one another. Meanwhile, Master Trade of Los Gatos, Calif., has seen its membership rise 25 percent. The 11-year-old local exchange has 700 member businesses.
Small businesses, from mom-and-pop shops to companies with fewer than 10 employees, make up the vast majority of participants on exchanges.
Take San Jose's Park Plaza Hotel, for example. General manager Chris Billawala said the hotel is doing 35 percent more business in trade compared with two years ago because of more empty rooms.
Within the last year, he's bought about $20,000 in goods and services, including print advertising and printing, without plunking down cash. Just a few months ago, he ordered $6,000 worth of mouse pads with the hotel's picture and logo. "We would not have gotten the mouse pads if we had to pay cash for it," said Billawala.
How an exchange works
In its simplest form, barter is a trade of goods or services between two companies. By joining a barter exchange, participants don't need to do a direct business-to-business transaction. Members can request to "purchase" services from anyone in the exchange. The value of the transaction is based on the retail value of the product or service. When the trade occurs, the "purchaser" or recipient incurs a negative trade balance that is paid off by providing its product or service to other members. Meanwhile, the "seller" accrues credit for the transaction and can spend it at other businesses in the exchange.
The barter exchange makes money by charging annual and monthly fees. For each trade, it's also paid 6 percent to 10 percent of the retail value in cash.