Remember Kyle MacDonald? He’s the kid who started with one red paperclip and kept bartering over the course of a year to finally get a two-story house. Although Kyle is a rare case, his story shows us that bartering goods and services is a viable alternative to paying upfront with cash. If bartering can work for an individual, it can also work for small businesses. Read on to find out how you can make the most of business bartering.
As everyone knows, it takes a bit of capital to get your business off the ground. But what if you’ve got no capital and you’re having trouble getting a loan or line of credit at the bank? Try bartering! Bartering can help you move excess inventory, get you through a slow business periods and help you save your limited capital.
According to David Wallach, president of the International Reciprocal Trade Association (IRTA), membership in the IRTA, which fosters business bartering, has increased by 15-20% in the last year. The annual increase has typically been 5-8% in previous years. This exemplifies how bartering has become more popular lately, as businesses struggling through the recession are finding new ways to move inventory and save capital.
Ready to give bartering a try? Keep the following things in mind:
Case-by-Case Bartering vs. Bartering through Networks
Case-by-case bartering means that you are making a business deal with one company or individual at a time, depending on what you need or can provide at any given moment. Case-by-case bartering can be a great way to foster relationships between you and other local businesses, but it also requires you to do more research and persuasion. Bartering through networks, such as the IRTA, can make it easier to find people to do business with, but you’ll probably have to pay a membership fee in order to get access to business deals.
Here is a list of popular bartering organizations:
- Atoncer Online Barter Exchange
- ITEX.com– a small business community and barter network
- IRTA.com – International Reciprocal Trade Association
Other helpful sites:
- Craigslist (Sometimes people will post trades in the For Sale, Community and Jobs sections.)
- Twitter (You can start following other small businesses and tweeting to them about starting a business deal. Or simply ask a question on your profile. “Anyone willing to trade…?” You’ll be surprised at the responses.)
- Fiverr.com (Technically not a place to barter, but this site lets people share things they’re willing to do for $5.)
Doing Your Homework on Barter Partners
No matter whether you’re bartering through an organization or on a case-by-case basis, you’ll still have to do a bit of research on potential barter partners before you select one (or more). Make sure whoever you’re doing business with is reputable and not in financial trouble. You want to make sure that they have the capacity to make good on any trades that you agree to.
Trying to Achieve a Win-Win
In order for a barter to be fair, both parties have to agree with the value of what’s being bartered. Spend some time attaching time or money values to the product or service you are offering before you sit down with your barter partner to discuss it. Try to come as close to an equal exchange as possible. And even if it isn’t exactly equal, try to think long-term benefits. Kyle MacDonald traded a cool, but non-useful, bit part in a movie to get a two-story house. Maybe you aren’t a basketball fan and have no real use for tickets to a championship game. You might want to take the tickets anyway. You could trade them with someone else for something you actually want, or you could sell them on Craigslist and get some cash. Whatever the case may be, just remember that your “win” may not be immediate, but it may be sweeter than you could have imagined.
Bartering for Ad Space
If you don’t have much of a marketing budget, you can always trade services for ad space. Say you’ve got a t-shirt printing company. You could sponsor an athletic event and provide free shirts or team uniforms in exchange for putting your logos on the t-shirts, banner ads, billboards, flyers, etc. You could also trade your services for ads in newspapers, magazines and websites, or on the side of local buildings. This is a great way to reach people without spending the big bucks.
Reporting Bartering Income
The IRS expects you to report bartering income on Form 1040, Schedule C, Profit from Loss from Business. If you exchanged property or services through a barter network or organization, you should receive Form 1099-B, Proceeds From Broker and Barter Exchange Transactions. Paying taxes on bartered goods may sound scary. However, according to the IRS, if you are in a business or trade, you may be able to deduct certain costs you incurred to perform the work that was bartered, which can offset your tax liability. Another tax advantage is to donate extra credits you’ve gotten through a bartering service to charity, which can get you an even bigger tax deduction.
Bartering can take a bit of time and effort, but it can also pay off big and be worth the costs. With a bit of resourcefulness, you could potentially go from surviving to thriving without blowing your entire budget.