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Alliances
& Partnerships
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The Ins and Outs of Business Bartering By
Gregg Keizer, Small Business Advisor, ZDNet Small Business Swapping
baseball cards as a kid is one thing. Swapping products and services
for your business is another indeed. By trading your business's
expertise or sweat for someone else's, however, you can save some real
cash.
For
many small firms, especially those just starting out or those
struggling to expand without kowtowing to the bank, that's the best
news since someone invented customers. No wonder last year saw about
$16 billion worth of goods and services exchange hands without an
exchange of dollars.
Bartering
may be older than the proverbial hills -- "I'll trade my wolf
skin for your three pieces of flint" -- but it's been updated to
the 21st century by the Internet. There, a handful of Web sites have
sprung up to facilitate trades between businesses, dramatically
widening your trade reach and eliminating the need to personally
search out bartering partners.
How
can you get your small business started doing trades? Should you? And
if so, what must you keep in mind?
Good
questions. And I have some of the answers.
Decide
if it's right for you
Short
on cash but long on inventory? That's when bartering makes sense. For
startups and cash-strangled businesses, bartering's smart. Bartered
transactions don't require cash, letting small businesses save that
precious resource for other needs. Cash flow remains undisturbed
during a trade, even though you're getting goods or services in
return.
It
can also be used as a marketing tool to bring in new customers and
move inventory into new markets. Typically, business barter occurs
most during economic down times, when customers are few and far
between. But even now, when the economy's chugging along, you can use
trades as an enticement, then try to turn those barter partners into
paying customers.
Need
more info before you decide to try trading? Check out the I-Barter
mailing list, a moderated message thread where business owners can
discuss all aspects of bartering.
Pick
the right exchange
Shopping
for an online barter exchange takes research. Since each exchange uses
its own proprietary currency -- just like a casino and its chip-based
economy -- credits earned on one don't transfer to another. That makes
it imperative that you select the right barter site.
First,
check out the variety of goods and services on the exchange site.
Unless you have very specific needs, the site should feature a wide
range of professional services -- everything from accounting to human
resources -- as well as big-ticket items such as office equipment,
manufacturing machinery, and travel. The larger the site, both in
numbers of posted items for trade and in numbers of members, the more
likely you are to make a trade. BarterTrust.com, for instance, stocks
about 10,000 products and services, while Ubarter.com boasts some
9,000 business members.
Second,
dig into the exchange's background. Since no one oversees bartering
exchanges, the potential exists for scammers and fly-by-night
operators. Deep pockets and/or longevity are good indicators:
BigVine's backed by American Express, and LassoBucks has been in
business since 1998.
Search
through the exchange site for its online terms of use or user
agreement so you know the rules and read the fine print. Pay
particular attention to any information on how disputes between barter
partners are settled. Most sites have a hands-off policy similar to
online auction Web sites, and expect buyers and sellers to work out
problems themselves.
Finally,
investigate the barter site's tools. At minimum, you'll need online
forms that make it easy to create listings, management pages that show
your trading activity, and a way to search the site for goods and
services.
Find
a barter partner
Among
the business-to-business barter sites on the Web, bookmark these:
BarterTrust.com
BarterItOnline.com
BigVine.com
LassoBucks.com
UBarter.com All
of these barter sites work pretty much the same way, each with its own
e-currency -- from LassoBucks to BarterTrust Dollars -- that you earn
by selling goods and services on the site. Each credit equals a
dollar, so a $500 item or service sold on LassoBucks generates 500 LB
(LassoBucks). With credits in your pocket, you go shopping for stuff
that other companies have posted.
Cash
may not trade hands between buyer and seller, but it does between you
and the site. These barter services charge a commission on every
exchange, and that commission must be paid in cash, not in kind,
typically by debiting a credit card. Rates vary by site, ranging from
two to ten percent, depending on the cash value of the deal. Some
barter sites charge other fees as well: BarterTrust.com, for instance,
levies a $15/month administration charge.
Don't
forget the Tax Man
Although
cash doesn't leave your pocket during a trade, the IRS still wants its
cut. The fair market value of any bartered goods or services must be
counted as taxable income. If you and your trading partner agree ahead
of time as to the value of the trade -- which is what happens when you
use one of the Internet's bartering exchanges -- the IRS accepts that
amount as the fair market value.
Sole
proprietors file this income on Schedule C of Form 1040, but other
small business entities report bartering as miscellaneous income on
the appropriate form. When you're using a bartering exchange, you
should receive a Form 1099-B from the service; this income-reporting
form (a copy goes to the IRS, so there's a paper trail following your
trade transactions) shows the value of the goods and services bartered
during the past tax year.
For
more information about bartering and taxes, head to the IRS's Web
site. Check out Publication 525 (Taxable and Nontaxable Income) or
Publication 334 (Tax Guide for Small Businesses) for the scoop.
http://www.zdnet.com/smallbusiness/stories/general/0,5821,2594187,00.html Barter: Relevance and Relation to Money BarterItOnline
http://www.ex.ac.uk/~RDavies/arian/barter.html
Business-to-business from Direct Stock Market Weston, Mass.-based BarterItOnline.com, host of a global goods and services exchange for businesses and entrepreneurs, has entered a five-year deal with a Boston-based publisher of theatre magazines, Publications Management. As part of the deal, BarterItOnline.com will receive $500,000 in media and advertising. http://www.directstockmarket.com/html/direct/ppnews/62300.shtml
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Equity trades are among
the services offered. The future value of startup companies can be
used as a 'currency' to make necessary purchases for growth.
