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Can barter help your business grow?
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Today you can barter most anything.
Today, the use of barter has increased dramatically in the past 30 years. The International Reciprocal Trade Association estimates that half a million small businesses using commercial barter exchanges generate over $10 billion in sales each year.
Barter has existed for over a thousand years. To be successful individuals had to negotiate the exchange rate for unrelated products and services. Or, find individuals willing to trade their product or service you needed for the product or service you had to offer and they needed. Today this process has become more sophisticated and easier with the growth of broker networks or clearing houses.
Barter organizations provide a closed financial system to their members using script or trade dollars. They act as a kind of bank, keeping track of transactions, issuing credits or scrip that can be traded among their members instead of cash. This enables the members to sell their products or services at their market rate in exchange for script to purchase products and services from other members in the group.
Members generally pay a small fee to join the network and a small percentage on each transaction. These networks generate new customers to the members that they wouldn't have if they weren't a part of the network. They also help their member’s link up with businesses that have something you want.
As the economy slows as we are experiencing today, the barter economy heats up. Not only for new business starting up but established business looking to expand their revenue and customer base. Exchanging business services is a practical choice to help slash startup costs for some new businesses. Most startups need accounting, legal and advertising services which is commonly available in a barter network.
Barter will work better for some businesses than it will for others. Good candidates for barter are companies whose products and services have high profit margins, perishable with respect to time, low marginal cash to support, slow moving inventory, obsolete or excess inventory, and excess production capacity. Specific services might include professional fees, hotel rooms, airline seats, radio and TV advertising. Each of these have a time component that if missed they expire with no value if not used.
After bartering networks exploded in popularity in the 1970s, the IRS formalized its rules on taxing bartered income. Just because barter is considered cashless does not mean it is exempt from the IRS and taxes. People and corporations in the U.S. need to report their bartering income to the IRS. The result of a barter transaction is a sale. These are sales which must be recorded on your income statement. The IRS measures bartered exchanges by using the market price of the goods or services someone receives. In a swap, both parties have to list the market value of what they received as taxable income. This means that commercial and corporate bartering exchanges require filing a tax form -- a 1099-B, "Proceeds from Broker and Barter Exchange Transactions" http://www.irs.gov/taxtopics/tc420.html
Small Business Bartering http://sbinformation.about.com/cs/smallbizlearning/a/barter.htm
IRS http://www.irs.gov/taxtopics/tc420.html
USA Today Bartering booms during economic tough times http://www.usatoday.com/tech/webguide/internetlife/2009-02-25-barter_N.htm
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