When Times Get Tough, Raise Cash By Barter
By Nora Caley
If your business is low on cash, or if you hope to save some cash as you run your business, consider bartering.
Bartering is an old form of doing business, but now there are some high tech ways to find people and other business who want to trade their goods and services for yours.
The traditional method of bartering is to seek out friends, acquaintances, and colleagues who might be willing to trade with you. For example, if you are running a catering company and your sister-in-law is a lawyer, you can ask her if she will handle your trademark registration if you provide the food for her next get-together.
That informal process has worked for many companies and for many years. If you don’t know someone who might barter with you, you can try to find them in your chamber of commerce, your networking events or web sites such as Craigslist.
This version of barter does have its drawbacks. If the lawyer needs ten hours to work on your case, how many hours of work, and how much food, should you provide her? What if it takes longer for her to complete your project than you’d estimated? And what if you don’t know a lawyer who is willing to barter?
The alternative is to join an exchange, or a bartering company. This is a membership organization in which each member gets an account similar to a checking account. When another member buys your goods or services, the member pays you with trade credits, which are deposited into your account. In the legal and catering example, you would cater another member’s party — it doesn’t have to be a lawyer — and they pay in trade credits instead of cash. Then you can find a lawyer within the network and use those credits to pay that member to do your trademark work.
There are many bartering exchanges, and you can find many of them online. The web site for the National Association of Trade Exchanges, www.nate.org, offers lists of bartering companies by state.
There is also the International Reciprocal Trade Association, www.irta.com, which works with 400,000 companies worldwide, according to its web site. Click on Membership Directory to find information about the member companies. Some larger exchanges have branches in several cities.
Choose a Reputable Exchange
Ask your colleagues and other business owners if they have worked with a reputable barter exchange that they can recommend. Make a list of goods and services you will need for your business, and find out if the exchange has members that provide these. If you hope to trade your consulting service for office supplies, you don’t want to join an exchange whose members are mostly hotels that trade rooms and media companies that trade advertising. Others might have members who are trying to get rid of excess inventory of jewelry, batteries, and Christmas ornaments.
Go online to see if the exchange has members in your geographic area. You might need an accountant who knows your state’s sales tax rules, or a computer expert who can come to your home office and install your network.
Research the payment rules, because one of your main goals is to save money for your business. Some exchanges charge a few hundred dollars to start, then monthly dues, plus a percentage of whatever you sell. Some accept a combination of trade dollars and cash. When you trade, you should get credits equal to the retail (not wholesale) value of what you sell.
Find out what would happen if you leave the exchange before you spend the credits in your account.
Also, find out how much support the exchange gives you. Will you be assigned a trade broker who will match you with a business that is seeking your services, or do you have to find other members by doing your own online searches?
Don’t forget your tax responsibilities. The U.S. Internal Revenue Service sees barter exchange as a transaction just like cash transactions, so you may be subject to liabilities for income tax, self employment tax, or other taxes. Keep records of your transactions. The barter exchange should provide you with a From 1099-B, “Proceeds from Broker and Barter Exchange Transactions.” The amount shown in Box 3, Bartering, is the total that will be reported as income. You would report the information in your Form 1040, Schedule C, or other business income tax forms.
For more information on taxes and barter, visit the IRS web site, www.irs.gov, and type “barter” in the search box or find the topic under Business. HBM