They say cash is king. That is especially true for small businesses right now. And it explains why during the recession, bartering -- that ancient method of getting what you need without having to cough up cash -- picked up big time steam.
David Wallach, president of the International Reciprocal Trade Association (IRTA), says that the industry is currently increasing at a rate of between 5 and 8 percent each year. “There has been a lot more interest in barter transactions because it’s simply providing an alternative way for businesses to gain revenue, and in this economy, that’s what they need. It’s another way to do business and reach additional markets.”
In fact, no matter what business you’re in, you may be able to benefit from a little swapping of goods and services. You just need to know how to go about structuring the agreement so that you’re not giving away too much for too little.
- Nearly any business can barter. If you think you have nothing to offer, it’s time to think again. Even restaurants -- where most of the inventory is perishable and of little re-sale value outside of the business -- can participate in these kinds of exchanges. Think about it: You offer an accountant free meals for his business lunches, and he does your books. Or you cater an event for a marketing firm, in exchange for their services. The key here is forming the right relationships so that they are mutually beneficial. “Almost everything that you pay cash for can be purchased through a barter system, including dental services, medical services, food and beverages, hospitality services -- really almost everything you can think of within an economy,” says Wallach.
- Consider joining an exchange. There are two ways to barter: direct bartering and bartering through an exchange. The former involves finding another business and entering into a mutually beneficial relationship where you set up the trade agreement (if you do this frequently, you’ll likely want to get a lawyer involved to draw up a contract). The upside of going direct is that there are no fees involved; the downside is that you’re limited to trading for what that second business has to offer. You also need to be prepared to vet the other company very carefully -- if they go out of business, or into bankruptcy, you’re on your own. This is where bartering through an exchange has the edge. You’ll pay a fee, generally 5 to 7 percent of the value of the transaction, but you have a wider range of options and, in most cases, some kind of code of ethics that the businesses involved have to follow. And, even better, you’re not limited to direct trades. So let’s say you’re a graphic design firm, and you’re offering up design work. A lawyer’s office might want that, but you have no need for a lawyer -- you want accounting services. The lawyer’s office can still take your graphic design work, and in exchange, you’ll receive credits that you can use toward a member accountant. There are a lot of barter exchanges in this country, so weigh the fees and membership of each before joining (IRTA has a list of its member exchanges here.)
- Strategize. Bartering is all about moving excess inventory and getting something valuable in return, or getting a service you need without paying cash. Sometimes both. So plan your trade with these goals in mind. Timing, too, is important. If your business is seasonal, you’ll want to move extra inventory when it’s most valuable. But also recognize, this effort takes time. You’ll want to do it when you’re at your least busy.
- Understand tax implications. If you’re involved in a direct barter, you have to report the fair market value of the goods or services you receive on your tax return. If you barter through an exchange, you should receive form 1099-B, Proceeds from Broker and Barter Exchange Transactions from the exchange. The proceeds from barter transactions are generally considered income -- barter dollars, or credits, are equivalent to real dollars, in the eyes of the IRS -- and therefore taxable. But keep in mind that if you spend those credits on something that would be considered a business expense, that cost is deductible. If you barter for a personal expense -- for example, you paint a dentist’s office in exchange for dental work -- it isn’t. Bottom line: keep careful records and your accountant in the loop.
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