In the 1800’s, barter was commonplace as people would pay the town grocer, the town doctor or the town barber with chickens or vegetables that they had grown on their farm. The problem was this system was inequitable. The doctor’s service was paid for with whatever the patient had on hand at the time, irrelevant of its relationship to the value of the service the doctor provided. Barter or trade exchanges began as an answer to this equality.
There are myriad benefits to entering into a barter-trade exchange relationship. You can join a formal bartering company such as Tradesource, or you can even create your own barter group to facilitate finding others who are interested in bartering. During this recession, many business owners have found that it makes economic sense to enter into the barter system to exchange products and services.
Here are four tips to get you started in a bartering exchange program for your goods or services:
- Some people start with direct barter: Talk to other professionals who you might be interested in using a barter business exchange agreement. If you are a professional bookkeeper, ask your yoga studio or your auto mechanic if they would be interested in working out a barter agreement to trade services. Clearly define what the barter will entail, hour-for-hour trade, or based on each parties’ prices for services rendered. This is a great way to get your feet wet in barter, and if you’re anything like me, you’ll be hooked.
- Understand that barter transactions are taxable events according to the IRS. That means if you trade services, the barter income you receive is treated the same way as cash income and you still are responsible for applicable taxes. On the flip side, the business services that you barter for may also be deductible as business expenses. It is likely that if you join a barter organization they will ask you for tax recording information (EIN or SSN) and they will send you a tax reporting form at years’ end but if you undertake barter transactions on your own – outside of a formal organization – you will need to track those exchanges as you would any other cash transaction. Many rules apply so make sure you work with a reputable Tax Professional who is familiar with the IRS rules on barter.
- Join a reputable and established trade exchange: Trade exchanges like Tradesource can help facilitate the barter transaction so that it is fair and equitable for both parties. Instead of directly trading with your auto mechanic for example, you can barter your services to the auto mechanic and then use the barter dollars he/she pays you to buy other services that you need. Trade exchanges literally open the door to thousands of products and services on trade. What this means is that your company is exposed to that many more prospects. Before you join an exchange do your research. Check with the Better Business Bureau, ask for a guest log in to check out the member businesses, even interview existing members to see how they like it, before you sign up.
- Establish fair rates for your products and services: The economy of the trade exchange is very similar to the external economy, basically set by the law of supply and demand. Don’t set your rates below market level just because you want to barter with someone and the rates for their product/service is lower than yours. On the flip side, don’t overcharge. Another reason to join a reputable trade exchange.
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