Save cash through bartering
Every small business goes through periods when cash is tight. Not being able to pay your bills
can be embarrassing to you and can ruin the good name you have worked so hard to build for
your business. In some instances you can work with your creditors to extend terms as a
short-term solution to your cash problem. However, more and more small businesses are turning to
bartering as a method of avoiding cash flow problems in the longer term.
Bartering occurs when you exchange goods or services without exchanging money. An example of bartering is a plumber doing repair work for a dentist in exchange for dental services. That saves each business the cash they would have otherwise have needed to expend for those services,
and they have the added benefit of building a good relationship with another local business.
Interestingly, one unexpected added benefit of bartering is the relationships that are built between small businesses. This can be a very basic strategic partnership. The bartering relationship
fosters trust, support and an interest in the other business prospering. Sometimes, especially
when the businesses are complementary, the business relationship turns out to be an even bigger asset than the cash savings from bartering.
Do note, however, that bartering is not free money. The goods and services being bartered do
need to be valued and declared on your income tax. The fair market value of goods and services exchanged must be included in the income of both parties. Income from bartering is taxable in the year in which you receive the goods or services. Generally, you report this income on Schedule C, Profit or Loss from Business Form 1040. If you are in a business or trade, you may deduct any
costs you incurred in performing the work that was bartered.
In addition to forming individual relationships with other local businesses, you can also arrange exchanges through a barter exchange. Barter exchanges are middlemen for transactions and provide barter credits based on the dollar value of the good or service. The business can then use its credits to purchase goods and services from other members of the exchange. The exchange provides access to a network of actively bartering businesses.
The Internet has provided a medium for new growth in the bartering exchange industry. There are hundreds of bartering exchanges operating around the world, and more are opening their doors daily. Bartering can be particularly useful in dealing with countries that have limitations on movement of capital in and out of the country.
The list of items available for trade seems unlimited. There are vast possibilities – from bartering
for advertising to bartering for salaries, benefits and incentives for employees. Almost anything is available somewhere, with the possible exception of utilities, taxes and bank payments. And with
the aid of an exchange, even though they usually charge a fee of 10 percent to 15 percent of each trade, the time commitment on your part is negligible.
Before signing up for a trade exchange, here are some common sense steps you should take:
- Make a list of what you want to trade and the items you would be willing to accept in return. Choose a barter organization that deals in the items you are interested in trading.
- Ask for a referral list of clients and confirm that they have been satisfied with how their transactions have been handled.
- Find out how many clients and items the barter organization currently has.
- Check the prices for items being bartered to see if the organization is pricing them fairly.
- Find out the location of the organization’s clients. Distance may be a factor in transporting goods.
Then again, you may wish to offer your goods over a broader regional area. Many trade organizations are local, but are part of larger networks of exchanges, providing a wider base for trade.
- Find out what other services the barter organization provides for its percentage of the trade. Common services provided are management of the exchange, brokering the items offered for
- trade, consulting services and barter information.
- Compare the services offered by a variety of barter services before making the choice.
- Legitimate barter organizations are required to report barter income of each client to tax authorities. Do not do business with any barter organization that does not provide tax reporting.
- Check with the Better Business Bureau about any organization you are considering joining.
Bartering can be fun and profitable. Some people make it their primary means of doing business.
In tight monetary times in particular, bartering can be a useful item to have as part of your financial management plan.
Source: Judith Kautz, Small Business Notes
