Bartering was perhaps the first way of conducting business. If you remember your history lessons, you might recall, how a man possessing cows would barter one cow for some sacks of rice in ancient times. Barter arrangements have been a part of the business community for as long as one can remember. Yes, with the invention of money, the practice of exchanging goods among two parties has been reduced, but even after so many years, bartering opportunities have not been obliterated from the business world.
You must be wondering how to barter in the current world where exchanging services for money is the most practiced form of conducting business. So let’s get to resolving your confusion right now. Bartering happens when you exchange services with an individual or an organization without exchanging money. As an example, if you’re a writer, you could write articles for a graphic designer’s blog, who could then create a logo for you.
Before beginning our tips on how to barter services, let’s clear out when you should get into a barter arrangement and when you should not.
When Bartering Isn’t an Option
Many businesses choose to barter their services when they don’t have enough money or can’t afford the assistance they need or want from another entrepreneur or business. This is a terrible idea. Bartering must never be done purely based on your finances or as an emergency requirement.
It makes more commercial sense to barter for critical business services rather than luxury products or mainly personal expenses. (Yes, we used to do that for our homework in school, but we got punished for it too. Punishments in school were minimal, but when it comes to your business, the penalty will be more severe).
For example, suppose you own a pet grooming business. One fine day you notice that your kitchen pipes have burst and you need a plumber immediately. It’s an urgent situation, and if you don’t have a plumber right away, you’ll be forced to move your family out of the house and into a provisional living situation. That would undoubtedly be a bad thing. But you have a business, and you know that the plumber you hired has a dog. So should you barter your dog grooming services in that situation? Do you want to entrust your home’s plumbing to an individual who will do the job in exchange for shampooing their puppy?
When Bartering Is Beneficial.
Bartering services are usually done when you are about to make purchases anyway. Instead of bartering your pet grooming services for an urgent plumbing situation, you could work out a deal with your shampoo vendor.
You already know you’ll need shampoo and cleanser to improve your business. So, each month, offer to conduct a pet pedicure in return for an equivalent amount of shampoo.
However, before you enter into any bartering contracts, you must first establish the value of the services you are bartering. You can only trade on the retail price of your services rather than their costs.
Now that you know when to barter your services, we will tell you how to get into bartering opportunities and save money. It may appear simple, but there are numerous ways for the barter system to go wrong, so here’s how to barter with other company owners while maintaining your public image.
Hold a Meeting
If you want to trade services with someone, you should first schedule a meeting. Take them out for coffee or a meal and tell them what you expect to accomplish through the association. It’s best if you speak frankly about trading platforms and what you can offer in exchange for work.
Make it clear that you are not attempting to obtain something for free. Rather, you’re searching for an exchange of professional services for professional services. People are much more likely to work with a bartering community if they know what they are receiving in exchange and do not feel exploited.
Describe your requirements and participation.
Before you start looking for potential bartering partners, you should analyze what your business’s most urgent needs are. Photography, visual design, advertising, promotional materials, social networks, and legal advice are all likely to be negotiated in your neighborhood right now. You can’t spread yourself too thin by trying to obtain everything at once, so instead, emphasize a service or two that you’d like to get accomplished soon. Then, once you’ve completed the barter exchange, you can apply valuable lessons to your next round.
You must also determine what you will offer your collaborators in exchange. What’s great about professional bartering relationships is that the services have monetary values, so direct exchanges are simpler to figure out and negotiate.
Whatever you offer, assign a fair market value to it early in the process. Come up with various value options, such as a pack of 5 courses, a 10-pack of free lectures, or a monthly subscription with no membership fee.
Decide how you will compute your work.
There are two methods for calculating the barter dollars. You can have an hour-for-hour barter plan or a project value for project value model, to conduct the barter successfully.
A writer and a video editor, for example, can barter in terms of hours of work. However, if the video editor’s services are considerably more expensive than the writer’s services, they may wish to exchange the project’s value. Even though preparing the blog content takes the same period to create, one video may equal five pieces of blog content. It’s upon the two parties in the barter exchange to develop an economic system to ascertain the proper monetary value for each of the trading partners’ services.
Look for your bartering partner.
Once you’ve determined which type of assistance you require the most, it’s time to search for the companies or individuals with whom you would like to collaborate. You don’t have to settle for the least when it comes to who you trade services with just because you’re bartering services directly. Identify companies with whom you connect, whose work you admire, or about which you’ve heard good things. Read their Google reviews, and see if you can find other businesses or individuals they’ve worked with that you can talk with beforehand. Bartering is a complex matter. You must trust the people you’re working with and guarantee that both sides share values and principles.
Be cautious and skeptical.
If something about the potential deal seems off, don’t hesitate to ask questions, get confirmation, request evaluations or consultations, or even call the deal off and search for a better one. You would not want to jeopardize your personal and financial security or the brand image of your company.
Learn about the best online barter exchanges.
There are various online options available to assist you with your bartering.
Craigslist
This popular website can connect you with prospective barter partners. Many tangible goods and services are listed with a price tag or “trade” option, indicating that the seller is willing to swap their goods or services for the desired product. At times, they’ll even put what they’re willing to trade, so you know if trying to contact them is worthwhile.
The International Reciprocal Trade Association (IRTA)
It is a non-profit organization that primarily works on ensuring fair bartering practices while also promoting the value of bartering among small businesses and communities. Their database can connect you with IRTA participants who have been screened for ethics and trustworthiness.
U Exchange
This website specializes in assisting small businesses with bartering by providing free postings, deals, and interactions between businesses willing to participate in trading their goods and services. Because many other credible exchange websites charge fees or commissions, this is a good place to start trading.
ITEX
The ITEX Corporation is one of the longest running barter network and has been helping businesses exchange goods and services worldwide for over 30 years. More than half a million businesses use our payment technology platform to process millions in sales every month. In addition, it offers its members benefits for increasing sales and reducing costs: Members can browse through a list of available products or post requests to buy or sell goods on our electronic marketplace.
Remember the legality of barter exchanges
Because no money is exchanged in business barter exchanges, it’s easy to believe that the usual tax rules of business do not apply. Even if you are engaged in barter transactions for services, you have to pay taxes. So you should include them in your taxable income, just like any other business deal.
Remember to bargain.
There is always a possibility of negotiation when signing up for a service from a small business or entrepreneur for that matter. Request only what you are comfortable with. When bartering services, keep in mind that the concepts of value and worth are not the same. It is not simply determining a fair rate or accepting the market rate. Bartering takes into account factors such as time, dedication, skill, and pretty much anything that improves the quality of work. Bartering is much more than paying a retail price or requesting a volume discount. It should entail a fair amount of discussion on both ends until both people or organizations reach an agreement that is fair and advantageous to both sides.
The details of the agreement
Once you’ve reached an agreement verbally with your barter trading partner, put it in a contract. Having an agreement to refer to will remind both sides of the direct exchange that it is a business transaction and must be handled professionally. Highlights should include the specifics of the barter with the other party along with the dollar amount assigned to the services offered. Partial barter and partial cash exchanges are also prevalent but must be worked out beforehand. You should also consult with an accountant because business bartering is very often viewed as taxable income and must be reported on your 12-month tax returns.
Setting a time limit for the exchange is also essential. You don’t want a graphic designer who has taken ten courses on your e-learning platform but has only completed one or two design templates for you. If you’re trying to enlist in a complicated service, you should set a time commitment so that you’re always on the same page from the beginning.
Don’t forget about your customers.
While B2B bartering is the most prevalent, corporate clients can also be a good source of bartering. If you discover that one of your regular customers has a good raw material affiliation, is a great designer, or has the skills and experience you need in your business, ask if they’d be willing to make a deal if you provide your customer with a free product/service in exchange for their connections’ services. It could be a good fit because your clients have already shown interest in what you have to provide.
What to Evaluate Before Making a Trade
Here are some final tips to consider when deciding whether or not to barter your services:
What should you bargain for?
Don’t go too far. You should only barter what is financially viable for you. A general rule of thumb is to set a maximum financial value for the services you are willing to barter. For example, if the financial value of the service exceeds $100, the answer should be “No.”
Set a cap on the maximum value of goods and services you are willing to swap in a specified timeframe (for example, no more than $1,000 per quarter among multiple people in the bartering community). You could set a cap on the number of trade partners in the local community also.
Is the service that you are going to receive critical to the functioning of the company? Otherwise, you should probably let it go and look for a service that you need at that point.
Do you have faith in a potential business partner? You must only enter into barter trade agreements with entrepreneurs or small businesses with whom you have previously done business or know people who have benefited from their services or have come across their positive responses on the internet. You should have a realistic explanation to believe that they will keep their end of the deal. Do not barter with strangers.
Do not get into subsequent agreements with your barter trade partners until prior agreements have been fulfilled.
As always, get your barter trade agreement in writing and explicitly mention all the details.
Consult your bookkeeper to learn how to monitor your cash flow and record bartering transactions to comply with Internal Revenue Service regulations.
Conclusion
Consider all barter trade agreements in the same way you would consider other legal contracts. Ensure that all exchanges of services are annotated. You and your staff will spend billable business hours performing services you traded for, so expenses must be accounted for accordingly. You must also ensure a return on your investment. If the services you receive in exchange do not lead to a net positive result for your company, the trade arrangement was probably not the ideal one. As previously stated, avoid trade agreements that combine your business and personal finances.