In this cash-strapped economy, businesses should consider turning to a buying/selling system that is older than currency itself: bartering.
Barter is simply the exchange of goods or services for other goods or services. There's no cash or credit involved. According to Barter News, barter activity through the 450 organized trade exchanges in the U.S. is growing 12% to 15% per year. This translates into millions of entrepreneurial business owners, multinational corporations, and even governments participating in bartering for goods and services such as media advertising, travel and entertainment, office products and equipment, printing and website development, remodeling and construction, healthcare services and more —without a single dollar being exchanged.
Bartering can improve cash flow, prevent debt and free up excess inventory (by moving goods in exchange for something you need in your business).
But before wheeling and dealing with bartering partners, there are steps to take to ensure a good bartering experience:
1. Exchange equal goods and services
- Attach a monetary figure to your service/goods. What's 10 hours of your consulting practice worth? If you charge $100/hour, seek out $1000 worth of services or product in your bartering arrangement. Remember it doesn't necessarily have to add up to the penny.
- Find a bartering partner. Sometimes these bartering opportunities will fall on your lap when you talk to your customer and find out that they may be in a tight cash squeeze, but do have valuable business skills or products to offer you for your product or services. Remember, most businesses won't think of bartering unless you ask.
- Put it in writing. As in any business deal, make sure that you have a contract outlining what is being exchanged and its cash value, to avoid misunderstandings later on.
2. Join a barter exchange
Seeking out the right bartering partners can be difficult and time consuming, particularly if you have niche products or services. Instead, you might want to consider a barter exchange group—a fee-based barter matchmaking service—to widen your potential bartering partners.
- You can get more information about barter exchanges by visiting one of two non-profit organizations that promote bartering: the International Reciprocal Trade Association and the National Association of Trade Exchanges.
- Understand how exchanges work. Barter exchanges work by "barter dollars" that are traded when one member barters with another member. Some exchanges offer a line of credit that can be used to "buy" items on the exchange. Low margin businesses may not want to join these exchanges since it does cost money (in fees, and/or commissions to the bartering network). One caveat about barter exchange groups: They are often for-profit, so make sure you get a referral from a business associate or contact the Better Business Bureau before you sign up.
3. Remember the tax implications.
- Know the rules. The IRS tax website has specific rules for bartering. You must report the fair market value of the goods and services received in exchange for the goods and services provided in the year the exchange was made according to the IRS Web site.
- Fill out the right forms. Barter arrangements should be reported on Form 1040, Schedule C, Profit or Loss from Business. This should be done even if the barter is done on an informal one-on-one basis or through a barter exchange company. Barter exchange companies are also required to issue a form (Form 1099-B, Proceeds from Broker and Barter Exchange Transactions) annually to clients, members and the IRS.
To find a local bartering exchange service in your state, visit barternews.com/mappage/.
While most bartering exchanges are local, national and international exchanges can be found on: International Barter Alliance, Ormita Commerce Network and ITEX.
A list of worldwide barter companies can also be found at barternews.com/mappage/worldwide.htm.