Bartering is on an upswing these days, thanks to the economic downturn.
For cash-strapped businesses, it’s an effective way to obtain goods and services without spending actual money. Bartering allows you to get rid of unused inventory by swapping it for items you do need. And the Internet has made swapping goods and services easier than ever.
“Bartering is an efficient tool which helps you find more of the things you need to run your business,” says Karen Hoffman, a marketing consultant in St. Louis and co-author of The Art of Barter: How to Trade for Almost Anything (Skyhorse publishing, 2010).
At the same time, bartering is deceptively complex. Getting the most out of it requires understanding the in’s and out’s before you begin. For example:
Learn about your options.
There are several ways to barter. One is the old-fashioned approach, through an informal, direct exchange of goods and services with another company. Another is to post an ad on Craigslist.
But to gain access to a larger pool of partners, you can join a membership trading company called a barter exchange. The way it works is that you get a specific number of credits for the services or goods you want to trade that you can then use to retrieve what you want. You’ll pay a membership fee and a percent of each sale. Many exchanges allow members to do business over the Internet, although transactions tend to be conducted over the phone or email. Also, exchanges have brokers who help conduct transactions, offer advice, suggest barter partners, and talk you up to other members.
If you don’t want to join an exchange, you can try one of the barter websites available. Usually you deal directly with other companies trying to trade their wares. Many don’t charge a membership fee.
Don't waste your barter credit.
According to Hoffman, small businesses participating in exchanges often get carried away the first time they engage in bartering and use their credits for personal items such as clothing or orthodontic treatment for their children. “You should use your credits to grow the business,” she says. Best is to have a plan for what you’re looking for—and stick to it.
Investigate the mix of local and national participants.
While some membership exchanges have participants located in the same geographic area, others have companies spread out all over the country, making it harder to find someone nearby. “If you’re in Nashville and you need a financial planner, there simply might not be anyone in the area who’s on the site and available,” says Shera Dalin, a barter expert and co-author, with Hoffman, of The Art of Barter.
However, if you primarily need computer help or other services that can be done from anywhere in the world, choosing a barter site with far flung participants won’t matter.
Make sure there’s a mix.
Even if you only need specific services or products, it’s wise to participate in a barter exchange or website with companies from a variety of industries. The reason: It probably means you’re dealing with a more vibrant organization. “If there are too many carpet cleaners, there won’t be much trade going on,” says Hoffman.
Do your due diligence.
Once you connect with potential bartering partners, check them out thoroughly. Ask for references, conduct a web search, and ask them lots of questions.
Be prepared to pay taxes.
The IRS considers anything you trade through barter to be a cash transaction, so you need to file a form 1099b for any gross sales you make. Consult your accountant if you have any questions.
Have a contract.
Be sure to treat the transaction the way you would any other business exchange, with a written agreement laying out terms. That’s especially important in more informal, direct arrangements, where, say, a web design company might swap services with a law firm right next door. At minimum, include a summary of what is being exchanged along with dates for when goods will be shipped or services will be provided.
Think ahead about potential snafus.In the case of a problem—say, a product is defective or doesn’t arrive—you have a few alternatives. If you’re a barter exchange member, you can complain to your broker and ask the exchange to intervene. Otherwise, says Hoffman, “You may have to take them to court, just like you would in the cash world.