Have I got a deal for you! Could Bartering Make Sense for your Small Business?
I haven’t paid a whole lot of attention to bartering as a way of business. As I’ve always understood it, to make a barter
arrangement mutually successful the following four conditions must exist…
- You need to provide a product or service that someone else wants or needs.
- They need to provide a product or service that you want or need.
- You generally need to want or need each other’s products or services around the same time.
- You both need to provide those products and services in amounts so that the value of what you each receive through the barter is equal.
So, sometimes bartering works out. Sometimes it’s not such a great deal.
But there’s an alternative way to go about bartering – and from what I can tell, it’s pretty much always a win provided your business situation is one that lends itself well to bartering in the first place (more on that a little later!).
Another writer local to my area, told me about LEGS (Lancaster Exchange of Goods and Services), and I’ve had the pleasure to learn more about this organized barter exchange community from its co-founder Melissa Monti. Though I personally haven’t signed up to participate, I believe that LEGS and the bartering concept at its foundation are worth mentioning to other solopreneurs and small business owners. This type of barter system might very well be a GREAT fit for you!
Barter Exchange Networks – A Better Bet!
LEGS is similar to other barter exchanges established internationally. It is not a franchise, but an independent company that uses a software-based system to enable members to post goods and services that they want to “sell” on the virtual trading floor and “buy” those posted by other members (from within their own exchange community and from those in other exchange communities that are connected through the software platform). Products and services are valued at their full retail rate. When someone selects your product or service, your LEGS account is credited for the dollar amount associated with the purchase. You use the credits in your account to buy goods and services that others have made available on the trading floor.
Unlike, one-to-one bartering, LEGS opens up a virtual smorgasbord of trade options. Rather than being beholden to exchange with the person who bought your items, you get to spend your credits on things that you’ll actually use. It doesn’t matter who buys your products or services with their credits, you can use your credits to purchase products or services from anyone else in the exchange. When you do, your account is debited the appropriate amount of credits.
More Bartering Benefits
According to Monti, some business benefits of the barter system include:
- Expanding your brand’s reach by attracting customers who might not have otherwise found your business.
- Conserving cash during the “slow” season. If you’ve got a business that has cyclical revenue, you could use trade credits rather than cash to pay for necessities like office supplies, web design, printing services, etc.
- Moving excess inventory. Got too much of something? Put it on the trading floor. What’s particularly nice about this is that when you set the quantity and value per unit, the exchange software allows other members to purchase specific amounts, and it automatically updates your inventory and credits your account.
- Driving cash business your way! Your presence in the exchange community raises brand awareness and can corral bona fide leads in your direction.
Who Does Barter Work Best For?
If you take a peek at the LEGS website, you’ll find that nearly every industry and type of business has representation on the trading floor. Photographers, landscapers, attorneys, bakers, tax preparers, exterminators, massage therapists, web designers and many, many, many more. And you’ll find products and services as diverse as billboard advertising, dog grooming, automotive oil changes, nutritional supplements, and elder care – to name just a few.
The exchange works especially well for new business owners who want to build awareness of their brands, for seasonal businesses (like those in the tourism industry), and for businesses who have unused or unwanted assets.
Solo-professionals who typically don’t find barter to be the best match are those with commission-based services (such as Real Estate and Insurance agents) and independent professional service providers who are at capacity with their cash client base.
Getting in on the Action
You might find that barter exchange networks will likely have a set of terms and conditions that you’ll need to comply with to be a member. Expect a one-time set up fee, though recently-established exchanges like LEGS might waive or reduce that cost to you if you’re one of the early adopters.
Other fees might include monthly membership fees and transaction fees payable in a combination of cash and barter credits.
One More Thing – And It’s a Big One!!
JUST in case you didn’t already know it – The value of the goods and services you sell through barter ARE CONSIDERED TAXABLE INCOME! You need to report your barter earnings to the IRS (and state and local governments if required in your neck of the woods). If what you’re purchasing through barter will be used by your business (for example, website design or copier paper), you can deduct it as a business expense. Stating the obvious, you cannot deduct items like personal spa products or dog treats!
LEGS provides members with annual 1099 forms that identify their income and expenses made through barter for the current tax year, and members can at any time access that information online through their membership account. I expect that’s common of other barter exchanges as well.
Trading My Final Thoughts for Another 30 Seconds of your Time
Is a barter exchange right for you? Do your homework before you decide by reviewing the exchange community’s terms of agreement, pricing, member list and trading floor activity. Also, talk with the network’s administrators to fully understand how the process works. And ask to speak with a few members of the network to find out if they’re finding it advantageous. You might also want to ask yourself these questions…
Will raising awareness of my brand to the members of the barter network benefit my particular business?
Do I have some time and/or inventory available to put on barter and still fulfill my existing clients’ needs?
Are there goods and services offered on the barter network’s trading floor that I truly need or want?
You turn! Have you every bartered one-on-one or participated in an exchange like LEGS? What good – and not so good – experiences have you had with either?