Will That Be Cash or Barter?
How swapping products and services could benefit your business
Bartering, the act of trading goods or services with other goods or services instead of money, is more popular than ever. And with many businesses dealing with constrained cash flow, bartering may be a good way to create value for your business.
The new world of bartering
Bartering traditionally worked something like this: You know someone who has something you need and you have something they need. You talk, figure out comparable value and make the swap. Everybody’s happy. But other than blind luck, finding a match to barter with was very difficult.
But with online platforms, bartering is now easier than ever with the creation of posting sites and exchanges. Posting sites provide a platform where businesses can skim for or post items they are looking to acquire or trade. These are usually free and unmonitored, so surf at your own risk. Bartering exchanges offer a marketplace and bartering credits that act as a middleman. You can trade goods and services and receive credit that you can use towards acquiring a different good or service. These tend to be actively managed and typically charge a monthly membership fee.
Remember, most bartering can create a taxable event. If you receive something of greater value or trade a deductible expense for a non-deductible expense, the difference is taxable income and needs to be reported on your tax return — so careful record keeping is very important.
When bartering can help
- You have a unique need with no available resources. Identify what you do well and look at your income statement to identify services you typically must pay for yourself. For example, consider a photographer who is paying a monthly tech support bill to administer their website. That photographer could reach out to the web development company to see if they need photos for their website services or other marketing material. They then barter their photography for coding expertise. It saves each party the necessary cash to purchase these services.
- You need to offload aging inventory. As inventory ages, decisions need to be made. Letting it sit can take up valuable space and paying to dispose of it is usually not the most efficient practice. There might be a business that has the same issue, but with something you can use. Take some time to think about the type of businesses that might find your old inventory useful.
- You have customers who can’t pay. Use bartering as a method for collecting from customers who can’t pay your invoice. Instead of sending an account to collections, consider whether your customer has something of value your business could use. Even if your customer doesn’t have anything of direct value for your business, you might be able to accept an asset and then sell it online to settle your outstanding bill.
Finding bartering partners can often have long-term benefits without having to dip into cash reserves. And if structured correctly, the service provided can offset the expense of the service received.
As always, should you have any questions or concerns regarding your tax situation please feel free to call.