Bartering is as old as commerce itself and today a variety of developments have brought renewed interest to this traditional practice. Challenging economic conditions combined with the ease of Internet-based exchanges have made bartering an attractive way of acquiring products and services, especially for newer small businesses.
In its most simple form, a new health club might offer a painting contractor a year’s membership in exchange for repainting its weight room. Local barter deals like this might be organized through an online service such as Craig’s List, or through word-of-mouth among business owners.
Ease your cash flow problem
Startups are often strapped for cash, so when goods and services can be acquired without having to write a check—or run up a charge card balance—it can be very helpful. However, I’m sure that you can already begin to see some of the problems you would encounter when trying to accomplish very much on a small local level.
If you turn to a service such as Craig’s List, you need to be sure that the party you’re bartering with is legitimate and a bona fide business. With the painting example I used above, you would want to be sure that the painter had all the necessary insurance coverage. Also, on such a small scale, it can be very difficult to find the product or service that your small business requires.
For that reason, many barter networks have sprung up around the country. As a member of a network, when you provide a product or service to another network member, you are rewarded with barter network “dollars” that reflect the value of your contribution. You can then “spend” these “dollars” to get something you need from another member of the network.
Typically there are fees to join and barter within these networks, including both hard cash and percentages of your network “dollars.” However, for the convenience and added utility they offer, the fees are generally quite reasonable.
Utilize excess capacity
Becoming a member of a barter exchange network can help small businesses deal with excess inventory or reduce production idle time. For example, squeezing an additional three percent of production from an assembly operation is usually easy to accomplish and that extra production could be used in a barter network to obtain a website redesign that would eventually result in increased conversions.
Of course, there are limitations on what you can barter for. If bartering was as convenient as cash, our monetary systems would have never evolved. Further, don’t think that bartering allows you to skirt the tax system. The value of bartered items must be accounted for just as cash deals would. The IRS requires that they be reported on form 1099-B.
Some of you probably have experience with bartering. Why not share how it’s helped your small business? And if it’s caused you some headaches, let us know about those occasions as well.
This article was originally published by Susan Solovic
Published: May 16, 2014