How B2B Bartering Can Boost Your Small Business
This is a guest post via Tommy Leslie, owner and CEO of Elite Barter Group LLC, a for-profit membership organization based in Lee’s Summit, MO and dedicated to helping businesses improve their cash flow, customer base, and overall financial health. Here are his tips on using bartering to grow your small business:
For centuries, merchants, explorers, craftsmen and even kings have been known to exchange goods to get what they needed or desired—from furs, to tea, to horses, and of course, gold. Fast forward to the 21st century and barter and trade are still being utilized today. Businesses of all sizes take advantage of this option in ways that help them run their enterprises more effectively. Here are insights into barter to help understand how to effectively incorporate it into your enterprise.
What is barter or trade?
Barter or trade is defined as the exchange of goods and/or services between businesses, organizations, or individuals without using money to pay for them. The Latin term, quid pro quo, “something for something” is the original definition. It is not a method of haggling or negotiating prices. Businesses barter almost every imaginable product or service locally, nationally and around the world.
One to One Bartering
Direct or one to one bartering works when two parties are offering exactly what each other needs at a similar value and quality. For example, Larry Smith of Smith and Jones Accounting would like new desks and chairs for his office space. Smith approaches his friend Sally Mills who owns Heartland Office Furniture and suggests an exchange of bookkeeping services for the furniture. They outline the terms of the trade and shake hands. Soon Smith is sitting at his new desk.
Direct barter can be time consuming when trying to find the right trading partners who have the product or service desired for a trade and are willing to participate. It's not impossible though. A business owner with a wide network of connections might find it a bit easier to trade on a regular basis over a business with limited connections.
Barter Networks and Trade Exchanges
Barter networks or trade exchanges offer trade options and advantages over one to one bartering. Exchanges are organizations comprised of a variety of member businesses, including both business and consumer products and services. They use a unit of exchange known as barter or trade dollars. Trade dollars allow barter to take place between parties when one party may not have a simultaneous need or desire for the goods or services of the other member. The selling member accepts the trade dollars which are then deposited into their online account. They get to spend those trade dollars with other business members in the group on what they do need or want when and they need it.
In one example from a trade exchange transaction, Larry Miller, the owner of Larry’s BBQ Joint, is a member of a trade exchange. He contracts with the Sally Jones, another member and the owner of Super Speedy Printing, for 1000 color menus. After the order is fulfilled, trade dollars are deducted from Larry’s trade exchange account and trade dollars are added to Super Speedy’s account. As Sally is not a fan of BBQ, she normally would not barter with the BBQ joint. Being a member of the trade exchange, she gladly accepts trade dollars and then uses them to purchase advertising, sales training, and other things she needs from other members. Jim encourages other exchange members (new customers) to spend their trade dollars at his BBQ restaurant.
How Barter or Trade Exchanges Function
Barter or trade exchanges typically charge a one-time membership fee. There is also a modest transaction fee and monthly maintenance fee. The various exchanges offer the advantage that they don’t require an even trade. Members can use credits accumulated for one item to trade for several different items that together add up to their total credits. The amount of certain goods and services available may fluctuate during the year. Fireworks may be available for trade in July or holiday gifts can be in the trade marketplace in December.
Barter and cash transactions are the same in the eyes of the Internal Revenue Service (IRS). Both are taxed equally. In fact, bartering exchanges must report goods and services sold through barter to the IRS. As barter sales are reported as income by the members, the IRS also allows them to deduct business expenses paid with trade dollars as if they were paid in cash. When done properly, there is no tax advantage or disadvantage to trade, just transparency.
Benefits of trade for small business
Trade can provide businesses with new clients and it permits the business owner to expand their market beyond their cash-paying accounts. Barter also helps in conserving cash. Instead of spending dollars to purchase select goods and services, business owners can exchange their goods or services to pay for those things they need to run their business. Or, they can trade for items they need in their personal lives, such as dental care, travel or landscaping. Thus, with trade, more cash stays within the business, providing better management of cash flow. Barter puts idle resources to work. Excess time, inventory, and capacity are converted into profits.
Author: Tommy Leslie is the owner and CEO of Elite Barter Group LLC, a for-profit membership organization based in Lee’s Summit, MO and dedicated to helping businesses improve their cash flow, customer base, and overall financial health.