Bartering for Business.

15 12 2009

To barter. According to Wikipedia, bartering is “a medium in which goods or services are directly exchanged for other goods and/or services without a common unit of exchange (without the use of money). Today, as businesses continue to struggle to make ends meet in this stagnant economy, bartering has become an increasingly popular way to exchange goods and services – rather than transacting for them with money.

In the restaurant industry, bartering is common place in their effort to fill seats, reassuring prospective customers who might be turned off by the sight of a vacant eatery. It is not a permanent fix for ailing restaurants, but it is an alternative way to cover cash expenses such as rent, mortgages, taxes and utilities. According to the Wall Street Journal,

“Many restaurants are using barter exchanges that track and manage the transactions, which count as taxable income and must be recorded for tax purposes. Rather than traditional bartering, in which services are swapped directly between vendors, most barter exchanges use a “round robin” approach that offers flexibility for both restaurants and service people.

For example, a plumber uses trade credits accumulated at an exchange to pay for a restaurant meal. The restaurant owner can use the credits spent by the plumber to “purchase” a variety of services offered by appliance repairmen, electricians and other exchange clients. The exchange acts as a bank, keeping track of credits and collecting fees on each transaction.”

However, bartering is not just for the restaurant industry. Simply put, “barter dollars” afford a much cheaper way for any business to borrow money (as opposed to going to a bank); in doing so, a business does not actually borrow money, it instead borrows goods and services without paying interest.

For small businesses specifically, there are several advantages to bartering:

  • Bartering offers a means to move goods and improve your operations.
  • Seasonal businesses can use barter exchange of goods and services during a slow period.
  • Start-ups and expansion companies with limited money for growth can use bartering as a strategic tool to acquire needed services.
  • Bartering enables the opportunity to turn excess inventory or services into print, TV, or other forms of media – offering the option to maximize marketing and improve your bottom line.

Though, it’s also worth mentioning a few cautionary measures a part of bartering:

  1. Money Pit: If your barter partner is in financial trouble and seeks bankruptcy, you may never receive your share of the barter agreement.
  2. Time and Money: Attach a time or money value to the barter.
  3. Tax Issues: Bartering does not offer a tax loophole to avoid taxation. According to the IRS tax website, “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.” The site also mentions that barter exchanges required you to file Form 1099-B for all transactions, unless certain exceptions are met. Thus, trade income can be considered to be the same as cash income for tax purposes. Trading should be viewed as a marketing tool, not a tax tool. But trade purchases that are business related are tax deductible to the full extent allowed by law.
  4. Business Barter Relationship: Any barter relation should be examined against the value added to your small business. For example, barter of 200 lbs of animal feed is going to be useless to a management consulting firm; but 3 months of free magazine advertising can greatly improve cash flow and aid your profits.
  5. Barter Exchanges: Consider a barter exchange group. Hundreds of barter exchange groups operate in America, offering an efficient channel to barter for small business. Barter exchanges allow companies to have access to more goods and services in a quicker fashion.

So how can you start bartering?

There are several bartering networks throughout the country that offer the opportunity for businesses to partake in this alternative form of exchange transactions.

  • The Merchants Barter Exchange offers businesses across the country to barter within their network. They have a very informative website offering education about bartering and current news articles about bartering.
  • Itex is another exchange targeting small businesses.
  • Bartercard and U Exchange are global exchange networks.
  • BizXchange offers Washington and California businesses the opportunity to increase their client base, sales, market share and cash flow by buying and selling regularly through their network.
  • There’s even a Small Business Barter Exchange group on LinkedIn.

In these economic times, creativity keeps business thriving. Consider bartering – it may just open up a whole new network of business!

Photo courtesy of epk.com.

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5 responses

15 12 2009
Arden Clise

Great information and resources Sarah. I love the snow too. How did you do that?

16 12 2009
thecompanyline

For a WordPress blog, follow the steps below to add snow to your blog:
(1) Click “Dashboard”
(2) Click “Appearance”
(3) Click “Extras”
(4) Click the box indicated for “Show falling snow on my blog. (Only until January 4th.)”
Enjoy!

16 12 2009
Amanda

The article was very informative, I think that more and more people will barter during the recession, and I am sure they will continue even after the economy turns around, I know I will. I have started to barter my clothing online at a website called http://barterquest.com , there it is possible to barter everything from goods to services, even real estate.

23 04 2010
Small Business Resources in Washington. « The Company Line: BLOG

[…] Bartering for Business […]

17 05 2011
jill Singer

Nice information About Barter system

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