Many businesses often wonder about trading products or services instead of cash. And what they often find out is that it’s beneficial for a couple of reasons. When you barter a product or service (for equal value) it’s a great way to improve cash flow. It’s also helpful if your business is squeezed for cash. The better news? It couldn’t be easier. Especially now, with online tools and sites that make it simple to barter. And local trading is a great way to establish relationships in the community. Here are a few few things to remember:
Get Agreements in Writing
Just because it’s another business doesn’t mean it’s any less of a transaction. Make sure you nail down what you’re getting and giving, an agreed-upon timetable, and the quality that’s expected. Business is still business.
Keep Your Standards High
Businesses are still customers and word of mouth is everything. So, make sure what you deliver and what you receive are the same quality you’d expect. Otherwise, it’s a bad deal.
Set Deadlines and Stay on Track
Agreeing on when you’re bartering is as important as what you’re bartering. So make sure you’re keeping each other honest. From beginning to end, both businesses need to be in sync about when the deliverables will be 100% ready or you’re inviting problems.
Negotiate to Receive Equal Value
Know the worth of what you are trading, and then know what you’re trading for is worth. While you’re doing this to save money, you also want to make sure you’re not giving away the ranch. So know what’s fair going in, negotiate smartly and everyone wins.
Establish an “Out” Clause
It happens. Sometimes who you’re trading with or what you’re trading just doesn’t uphold the agreement or make sense. So, agree ahead of time on how to dissolve the agreement should this occur. And yes, put it in writing.
Since day 1 the internet has been a huge help to businesses. A barter exchange is another one that brings businesses together. So, search “barter exchanges” or check with the National Association of Trade Exchanges or the International Reciprocal Trade Association.
All you need to do is register on the barter site and post an item or service for exchange. Other businesses will let you know if they’d like to barter for what you’re offering using “credits”-the seller uses those credits to buy other products and services, continuing the barter cycle. For this, the barter exchange takes a fee for connecting buyers and sellers. Most exchanges charge a monthly fee, a commission based on the value of the goods and services exchanged or both-find what works for you and your business.
Taxes On Bartered Goods and Services
While barter transactions don’t involve cash, they do involve the IRS-who expects fair market value for anything bartered product or service for the year they were received. Often the cost of producing goods or services is on the expense side of company returns in the tax year they incur the expense. So most likely, the “revenue” and “cost” cancel each other out.
Even if they don’t, barter reduces overall tax liability since the value of a product or service is typically lower than the amount you’d pay or receive at full markup. For example, receiving a service at cost rather than at market value lowers a company’s “income,” and, therefore, tax liability.
But bartering is a sound idea beyond tax benefits. You improve cash flow, create strategic partnerships, reduce excess inventory or find a utilized production capacity. You also begin to make good use of slow months or downtime in the business year.
Remember, it’s only a good deal if both parties need or want each other’s goods or services. The benefits of bartering can be many-fold. It makes good use of idle capacity, unloads excess inventory, and frees up cash for other business purposes. So be on the lookout for bartering opportunities that work for you.
© Fintactix, LLC 2022