Can bartering help you?
June 5, 2008 by ShannonCherry
Filed under Business
I just read an interesting article in Entrepreneur this morning regarding the use of barter to help small businesses and startups survive during a bad economy.
There are two forms of barter.
I’ve used the more traditional method, exchanging my services for someone’s time or product. Some have worked out great. Other times, I felt I was doing more for less in return. I suggest if you’re interested in this method of bartering, you create a contract, just like anything else and make the barter as financially equal as possible.
Barter can also be done through a barter exchange which acts as a sort-of middle-man. The exchange issues “barter bucks” to you when you do something for someone else in the group. You can then use those “bucks” to purchase the goods or services form anyone else in the group. So even if you provide your product or services
According to the International Reciprocal Trade Association (IRTA) almost a half a million small businesses use commercial barter exchanges every year, with about $10 billion in sales transactions annually.
If you’re interested in bartering, here’s one reminder any business derived from barter is income for tax purposes. The IRS treats barter transactions just as they do cash transactions. (If you have questions, you should checkout TaxGirl, who can shed some more insights on this!)
In any form, I am NOT a fan of bartering.
Mike,
Tell us why. I’d love to know your opinion!
Shannon
Hey Shannon,
My experience with batering is that both sides feel they lose, and both are then “motivated” to inflate the value they attribute to their part of the deal.
For example, I may be trading you 5 hours of web development service for a computer your sell. Since I sell my service for $200/hour, I argue it is a $1000 value. The computer you sell goes for $1000. If the trade went through, behind the scenes you may think the web development costs him only his time. So in fact the value is $0, and by giving him a computer you got ripped off. I on the other hand would assume the computer you sell for $1000 only costs you $500, so I am now working 5 hours for only $100 an hour…. losing out on other customers. This example can go on and on… but I hope you get the picture.
For a barter to really work. One side should provide the product/service and receive cash in exchange. Then the other side should provide their product/service and recieve the cash back (assuming the same value). The exchange of cash allows better allotment of “fairness”, and the buyer has the ability to hold back cash if they feel unfairly treated. So, in short this is in fact not batering at all, it is a standard exchange. Money for a product/service and so forth.
This may not be the best written arguement, but I hope you get my feelings on why bartering doesn’t work.
(Great blog you have going by the way).
I want to comment on the bartering example sited above: If the retail price is $1,000 for a physical computer and the retail price for 5 – 200 dollar an hour technical services, how is their an unequity. Doesn’t each person give / get $1,000 of value?
It appears that you are not cut out for barter, and that is fine that you have identified that and you know that you do find more fairness in the exchange of cash.
My advice would be to discuss in advance whether each person is offering their products or services at wholesale price or retail price — or at a discount or a promotional price.
I have seen barter work for myself and many solopreneurs for several decades and I believe it lies in the agreement that both parties believe they are getting something need and that they are giving something of relative equal value in return.
Be a Go-Giver! Some barter may not be ~exactly~ valued to the same dollar amount. If everyone is giving and getting what they want — then satisfaction occurs on both sides of the deal.
Once you get the barter bug, you find great value in giving giving giving and then getting just what you need in return!
I recommend a contract or at least a detailed e-mail outlining what each person is giving and the timeline for any time of agreement.
Bobbie Harris, Business Consultant and Success Coach
Bobbie,
I agree there is no inequity at the face value. But, the emotion behind it often is a perception of inequity. At least one side inevitably feels they got the short end of the stick.
I do agree with your points on how to manage a barter deal. And feel it may be best suited for single person shops. My experiencing in batering has been all with small businesses 20 or 30 employees… and the ones I have observed have never worked as well as a simple exchange of product/service for money.
- Mike
I love bartering … sometimes. Running a magazine, I get a lot of perks, free meals, books, product samples, bottles of wine, more than I can ever use. I just bartered gift certificates to a restaurant (I have $1500 in trade dollars there) in town for a photographer to come in and take some photos for an ad. Worked out perfectly and he probably got more certificates than he would have had received cash. I also use gift certificates to restaurants, spas, etc. to pay some of my writers.