Cash flow is never more critical than in your first year of business. One way to control your cash outlay is to barter instead of paying cash for something you need. My consulting group swapped marketing strategy services for a website with a web design firm.
Barter is as old as the hills. Before money was invented, everything was simply traded. A whole industry of barter companies has emerged in recent years. Search for “barter services” on Google and you’ll get over 6 million results. The web has made it easy for sites to arrange matches between parties for what you have and what you need. Most of these sites are just “matchmakers”, and you negotiate your own deal directly with the other party.
At the most basic level, barter is an old-fashioned handshake, and unless goods are swapped simultaneously, good faith is involved. You have to agree mutually on the relative value of the goods or services for the barter to work. If you’re arranging the barter on your own, it’s best to barter with someone you know.
There are a number of ways to barter:
- The simple 1:1 “even-Steven” swap, between you and one other person. You can do this on your own or use one of the barter websites.
- A barter with unlike values, still 1:1, allows you to pay cash for the difference if what you receive is worth more than what you give. Alternatively, you can fulfill the remainder of your commitment later with an additional service, but there is a large element of trust involved if some portion of the trade is deferred.
- Multi-party swaps. Say, you need a printer for your plumbing business. The printer store doesn’t need any plumbing, but perhaps a third business needs plumbing and can cater the open-house the printer store is planning. You work out a three-way deal. These can get complicated, so you may want to use one of the barter services to put together the transaction.
Things to remember:
- What you are giving up has a cost. It’s either your time to deliver a service or it is an inventory item with its own associated pre-markup cost. Or a combination.
- The IRS does require you to pay tax on your barter income. See the IRS page on bartering income. You should also check for tax implications at the State level, especially if goods are involved.
- Some of the companies that provide barter services beyond matchmaking charge membership fees, which can run $50/year but provide unlimited services for the year. Compare services before you choose one.