by Anne Ramstetter Wenzel
Bartering for goods or services can build your company’s experience and expertise, expand your client base, and provide you with crucial business supplies or services while conserving cash. You need to take care, however: The 5 “Bartering Rules” outlined below can help you to avoid the pitfalls and maximize the benefits you receive from bartering agreements.
Bartering Rule #1: Only barter if you’re company has some down time or excess capacity to spare.
You have to put in time to provide a service, or part with actual inventory and/or use production capacity as part of any bartering arrangement. If your company is operating at or near full capacity when you agree to barter, you will have to turn away or postpone new business. You may end up disappointed with the arrangement if you have to forgo cash sales to fulfill your end of the bargain.
Last November, I agreed to barter business plan consulting and writing services in exchange for business coaching services. Although I’ve gained a lot of positive support and wisdom from my coaching services, I found it difficult at first to find time to complete my end of the bargain. I searched my calendar for “down time,” and then scheduled that time solely for performing the business planning and writing services I exchanged for coaching services. Working on such a tight schedule was stressful, but it allowed me to do the bartered work I agreed to without having to turn away paying clients.
If you don’t have any down time, you may want to skip bartering arrangements and stick with paying clients instead.
Bartering Rule #2: Only barter for business supplies or services that you really need or value. Since you are going to be giving up your company’s resources (of time, inventory or production capacity), make sure you are receiving something of value in return. Beware of entering into a bartering agreement with a “Sure, Why not?” attitude: You may end up resentful of the drain on your company’s resources if you don’t truly value what you’re getting in return.
I’m finding the business coaching services I’m receiving as part of the bartering agreement to be extremely valuable. I’ve also bartered for no-cost advertising in newsletters read by small business owners, in exchange for licensing of articles I’ve written. I find that when I’m convinced that I’m bartering for services that will help my business prosper over the long haul, I’m highly motivated to perform the work for “free.”
Bartering Rule #3: Exchange equal value for equal value, and get the other party to clearly agree before you begin to barter. Write out a contract, or send an e-mail, where you state clearly what goods or services are going to be bartered. Once the agreement is written out, you can easily spot inequities and negotiate for a more equal trade. Work things out clearly ahead of time, and you’ll avoid any misunderstandings or resentment.
Bartering Rule #4: Keep careful records! The IRS requires that you report the value of business goods or services you receive in bartering transactions. Bartering works best when you exchange business goods or services for business goods or services: You won’t be taxed on the value you receive since it’s a business expense that you deduct. I send out an invoice to my bartering partners, billing them for the value of the services I’ve provided. I then “deduct” the value of the goods or services I’ve received on the invoice, until it shows a zero balance.
If you have a contract, send the IRS and your bartering partner form 1099B at the end of the year to report the value of the trade (see 1099B instructions at http://www.irs.gov/pub/irs-pdf/i1099b02.pdf). If you’ve conducted a business-to-business exchange without a contract, you may have to fill out a form 1099-MISC (see 1099-MISC instructions at http://www.irs.gov/pub/irs-pdf/i1099m03.pdf).
Bartering in exchange for personal goods and service may lead to your owing additional taxes. When exchanging business goods or services for personal goods or services, consult with your accountant and read over the 1099-MISC instructions carefully (the recipient of business goods or services has to fill out a 1099-MISC and send it to the bartering partner after the end of the calendar year, while the recipient of personal goods or services does not).
Bartering Rule #5: Treat your bartering customer the same as you would a paying customer.
Do your best! You’ll build business expertise and, eventually, a larger client base. Even if the bartering person or company never becomes a paying customer of yours, the owner of the company or the employees will become your biggest business cheerleaders if you provide exceptional value to the company. Positive word of mouth is still one of the best marketing methods for building your business.
I’m already beginning to rave to my colleagues about the great coaching services I’ve received in exchange for the business planning and copywriting services I’ve provided. And I know my business will be much more profitable over the long haul because of the valuable goods and services I’ve received as part of past bartering arrangements. Until my business picks up to the point that I have no time to barter, I’m “sold” on the idea of trading for some of the goods and services my business needs to prosper.
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