Is bartering services with other business owners a good idea?

Q & A by C.J. HaydenBartering can be a very useful strategy, especially when your business is young. By arranging trades for certain products and services, you can obtain what you can’t afford to buy, save money, and avoid incurring extra debt.

To make a barter arrangement work, a few simple rules will help. First, both parties must agree to the terms of the trade, and the items traded should be of equal value to both of you.

Start by comparing the regular prices each of you charge for what you’re trading. For example, one hour of graphic design at $75 would be worth approximately two hours of bookkeeping at $35. Then make sure that each of you actually needs the product or service being traded. If one of you has no immediate use for what the other is offering, a barter is usually not appropriate.

When proposing or agreeing to a barter where products are involved, remember that there is usually a dollar cost attached to tangible goods, whether this is their wholesale price or the cost of materials. You must take this into consideration when arranging your trade. So in a trade of business coaching for carpentry work, the coach would need to pay the carpenter for the cost of the materials used, either in cash or additional barter hours.

If a substantial amount of time and money is involved, put your barter agreement in writing. A brief letter spelling out the arrangement you have made will avoid misunderstandings later on. If your trade will be going on over a period of time, keep track of who owes who as you go along. Don’t let one of you get too far ahead of the other, and end up owing more than can be paid back quickly.

Whether or not to barter is a choice each business owner gets to make for him or herself. You shouldn’t expect anyone to barter, or allow them to require it of you. You don’t need to give a reason to refuse a trade you don’t wish to make. Saying, “No, I can’t do that right now,” is plenty.

If you are planning to ask someone to barter, be sure to tell him or her so up front. If they are not interested in trading with you, and you can’t pay, it isn’t considerate to take up their time inspecting their products or inquiring about their services.

If you like the idea of barter, but don’t want the headaches of setting up and managing a private arrangement, consider using a barter exchange service like BizXchange or ITEX. These services allow you to bank barter credits and then spend them with other exchange members.

Keep in mind that the U.S. Internal Revenue Service and Revenue Canada expect you to report income that your business receives in the form of products or services. You are required to include this kind of business income on your tax return.

You may also be required to file a tax document (Form 1099 in the U.S.) for products or services you provide someone else in a barter, if the value exceeds a certain amount ($600 in the U.S.). Yes, people do skirt these reporting requirements, but you should be aware that they exist.

There are two pitfalls you should look out for in bartering. If one of you is dissatisfied with the other’s work or goods, the trade can go sour. If this happens to you, end the arrangement immediately; it’s not going to get any better. And if you do a lot of barter work, be sure that you are leaving yourself enough time to also generate paying business. It’s a rare landlord who will accept barter for the rent!

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