Swap meet: after a decade in the barter business, Jim Munson struck out on his own to form a hybrid exchange that uses cash; the results are mixed. (Small Business).

FOR Jim Munson, it felt like a real coup.

After years of running an office for Barter Exchange International in Burbank, he broke off three years ago to form his own operation, signing up longtime BXI member Angelyne.

"When I told her I was starting up my own exchange, she said she wanted to be my first member," he said. "But she hasn't done any transactions yet."

The quandary posed by the ageless Hollywood icon, whose billboards and pink corvette are kitsch landmarks, is one that Munson's Better Barter faces on a daily basis.

Barter is the oldest form of trade, and while cash has become king, the exchange of goods or services of like value accounts for, by one account, nearly $4 billion annually in the United States. But while he has been rapidly building his member base, Munson's venture has yet to move into the black, in part because many members, like Angelyne, have been reticent to dive into the transactional pool.

"I thought it would be cute to be (Better Barter's) first member. I just wanted to devirginize it," said the blond poster child for self-promotion. "Now I'm waiting to get devirginized, I haven't used it yet."

Munson put in $100,000 to get the business started, covering the rent on his 2,200-square-foot office and the hardware and software needed to run the custom-designed Ethernet system through which transactions take place.

The Monrovia office is staffed by Munson, his wife, Kathy, and two trade directors who oversee transactions and telemarket to drum up business among members. The trade directors earn $10 to $15 an hour while two outside sales representatives earn 80 percent commission on the $499 membership sales they generate.

"Most of our members are within 50 miles of each other," said Munson. "Better Barter members don't order each other's products online, almost all of the transactions involve visiting the local businesses."

Munson concedes he's not getting rich. In its first year, Better Barter had scant revenues of $4,752. This year he has signed up 180 new members at $499 each, and generated $14,265 from transaction commissions in May alone. At this rate, Munson is projecting to top $300,000 in membership and transaction revenues this year.

Hybrid form

Every transaction involving the network's 500 members is paid half in cash and half in credit, distinguishing Better Barter from most of the more than 500 trade exchanges in the United States, where deals are made without any cash component.

A small business owner buys into the network and receives an account, a signing bonus of $499 credit and a listing on the network's online catalog. If the member wants to have repairs done on his car he calls up one of the mechanics on the network If the work costs $1,000, he pays $500 in cash and $500 is deducted from his account and credited to the seller's account

The seller calls Better Barter's automated credit line with details of the transaction, and Munson's company bills the seller 10 percent, which is paid in cash.

Exchange networks like Better Barter took on their present form in 1960 with the incorporation of Barter Exchange International. For small businesses, it was a chance to dump excess inventory. In the early days, many people used the exchanges to get around paying sales taxes. But the IRS got into the game in 1982 when Congress passed the Tax Equity and Fiscal Responsibility Act, making exchange networks legally recognized third party record keepers.

Many of Better Barter's 500 member businesses are still interested in getting rid of excess inventory, while others use the exchange as a way to invest in their business without spending cash or as a marketing tool to gain new customers who lead to cash-paying referrals.

The most heavily represented businesses are auto, food, retail gift stores, home and garden contractors and businesses offering advertising services.

But like Angelyne, not every member is making full use of the service. The biggest problem seems to be plenty of sellers but buyers unable to find product they want.

Then there is Edgar Paredes, an independent landscape contractor, who has amassed $42,000 in Better Barter credit but is hard pressed to come up with an equal amount to spend in the system.

"I can't spend it because I still have to pay half of it in cash to buy something," Paredes said.

"I did get 18 new customers. Even though they paid half cash, they were customers that came out of nowhere, just from my membership," Paredes said. "But I don't feel like I've gotten out of it what I've put into it yet."

Barternews Magazine lists 91 exchange networks in Califorma -- about 20 percent of the U.S. total -- with nearly half of those controlled by three companies. Munson attributed Better Barter's slow trading activity to the fact that most members also belong to other networks, and they want to use up the credit they've amassed before spending on Better Barter's network.

"The trade dollars in the other exchanges are significantly devalued," said lawyer Bill Remery, a long-time member of other straight-trade exchanges who joined Better Barter about four months ago. "The unique thing with the Better Barter system is that it has this anti-inflation system. Half is in cash, and no one who is paying cash is going to pay for inflated prices."

RELATED ARTICLE: PROFILE

Better Barter

Year Founded: 2000

Revenues in 2001: $4,752

Revenues in 2002: $17,870

Employees in 2001: 2

Employees in 2002: 2

Goal: To add one new barter member per day and open two new offices in Southern 'California by the end of 2003.

Driving Force: Bringing members new business, allowing them to capitalize more on their services and inventories and reduce their cash expenditure while investing in their companies.