Trade exchanges are a winning strategy for local businesses.
When children trade a juice box for a cookie, they are bartering to acquire something that they want without any money.
Adults trade goods and services one-to-one as well, but during the past several decades, many business owners have used organized bartering through trade networks an important part of their business strategy.
When a business experiences a lull in customers, fixed operating costs can be a drain on cash flow. That’s where trade networks fill a gap — providing new customers who pay for products or services in trade credits through a membership exchange.
Trade exchanges or bartering networks facilitate business-to-business sales among members who use trade credits rather than cash to buy from each other. The credits received for a sale are banked for that company and can be used any time for purchases from another exchange member.
Trade networks are a significant force in the economy — the International Reciprocal Trade Association, which works to establish trade network standards across the globe, reported $12 billion in trades through exchanges during 2012.
The Detroit area is the headquarters of two trade exchanges that began in the 1970s —TradeFirst and Metro Trading. TradeFirst (www.tradefirst.com) has 5,000 members and has achieved more than a half-billion dollars in trades since its establishment in 1978. Metro Trading Association (www.metrotrading.com) has more than 3,000 members in a wide range of businesses. Each exchange has a significant number of Jewish-owned businesses as members.
Adrienne Lenhoff, owner of Shazaaam!, a public relations and marketing firm, uses TradeFirst to offset business expenses such as computer repairs, office furniture and phones through trade dollars. In addition, the firm’s trading dollars have been used for employee outings and entertaining clients. Shazaaam! is also a member of Trade International Exchange, which helps cover travel expenses to visit clients in other countries. Her agency, based in Novi, has traded approximately $500,000 in volume since joining Trade First in 2001.
“Barter groups are sales teams, and they have kept us visible in front of our target market. Our first client was a barter company, and I saw a great opportunity. Some trade clients have retained us and some have referred their clients to us,” she said.
Another trade exchange feature is the ability to combine trade credits with a line of credit for larger purchases. She says that the trade company charges interest comparable to that for a credit card.
How It Works
TradeFirst clients are assigned a broker who helps them identify other members who offer needed services.
“When we decided to move, I called my broker and asked about movers and storage companies. When we were planning my daughter’s bat mitzvah, I contacted my broker to talk to a possible venue,” Lenhoff explained.
While trade credits can be used for non-business expenses, their dollar value is personal income subject to income taxes. Bartering networks are legal and recognized by the Internal Revenue Service, notes Marshall Schwartzman, CPA, of Randall, Frank, Schwartzman, CPA, PLLC in Bingham Farms. He points out that federal income tax forms have a section for barter transactions. Trade exchanges provide members with 1099 forms for the services they sell.
Businesses usually pay a one-time membership fee that provides a trade exchange directory listing, access to a Web-based directory, and the services of an in-house broker who helps them find products and services they need. Computer capabilities have simplified and enhanced the bartering process over the years.
When Darrell Marx, owner of Darrell’s Firestone in Farmington, provides car repair services for a TradeFirst member, the transaction is based on actual retail value even though it’s a non-cash sale. The transaction amount for the car repair is credited to his account at TradeFirst, and the trade credits are available for him to use with any one of their members.
“It’s like a little bank account,” Marx said. “I use it every day for just about anything from a coffee service to cleaning to carpeting. I used it for a b’nai mitzvah at the Roostertail in Detroit. It’s another source to gain customers, and I’ve gotten a lot of residual business from it. I don’t discount services. Cash is collected for the sales tax, and a fee of 10 percent goes to the trade company.”
At least one other local Jewish business owner has used trade credits to cover a bat mitzvah, held at the Edgewood Country Club. This businessman, who prefers not to be identified, is affiliated with Biologix, an environmental maintenance company that serves many commercial food venues, such as restaurants, hospitals and nursing homes. Cleaning kitchen grease traps in environmentally sound ways generated sufficient trade credits to cover food, beverages and even embossed sweat pants for the bat mitzvah party.
He values the bartering network for helping boost sales.
“Sales is the hardest thing,” he said. “All this value found me without expending the effort for sales.”
Fred Detwiler, founder of TradeFirst, said, “Yesterday’s unused capacity is gone forever. We help companies sell what they normally sell and take it in trade.” By selling goods and services through his business exchange, “trade credits are banked for a rainy day.”
TradeFirst has 35 employees who staff offices in Michigan, northern Ohio and southern Florida. The company’s business members represent 1,000 categories of goods and services with trade totaling more than $1 billion since its inception. A travel department helps members plan business conferences and employee reward travel, and a media department assists members with advertising.
Metro Trading Association was started 28 years ago by Al (Alan) Wilson, who formerly worked in the radio business. Both trade networks are affiliated with exchanges in other parts of the country so that their members can access other markets.
Kenny Borin, owner of Industrial Bag & Specialties, is an enthusiastic barter participant who uses his trade credits for everything from a health club membership to landscaping.
“The trade benefits are enormous, but the biggest and most exciting trade comes each year in August when I take my rabbi —Elimelich Silberberg of Sara and Moris Bais Chabad Torah Center in West Bloomfield — and his entire family to Harbor Springs where we stay for trade at the Birchwood Inn.
“We have been taking this trip now for some 22 years. It started out with the rabbi and his wife, Chaya Sara, and their 10 children. Now we are up to some 25 adults and around 35 grandchildren. To put it mildly, this would not have been possible if it weren’t for the trade,” he said.