Dear Mrs. Riches:
I was recently approached by another businessman in my area about bartering services. I'm intrigued (the idea of saving the tax money is appealing, for sure) but want to think about it more before I take the bite. Do you have any thoughts -- pro or con -- about this ancient style of doing business?
--Swap the Shop
Dear Swap the Shop:
Bartering has gotten a definite makeover since the days of trading pelts for maize. In fact, it's gotten a new name -- reciprocal trade -- and its very own non-profit organization and advocacy group, the International Reciprocal Trade Association (IRTA). Whatever the name -- bartering, swapping, exchanging, or reciprocally trading -- obtaining goods and services without outlaying cash from the coffers is a very viable way of doing business. According to Barter News, many large corporations -- including General Electric
What bartering is not, unfortunately, is a way to save on your taxes. The IRS considers "the fair market value of [the] goods and services" exchanged as part of your taxable income, though you may deduct "costs incurred to perform the work that was bartered." To be on the safe side, consult your tax advisor about the tax ramifications for your business.
The name isn't the only thing that's been brought into the 21st century. Now, rather than having to approach other businesses yourself, you can join a barter exchange (think matchmaking, but for goods and services). These formal exchanges typically work by allowing you to earn trade credits or trade "dollars" instead of cash; you can then use the credits to purchase goods or services from other members. Should you decide to go this route, you'll want to do your due diligence in researching the barter-exchange company.
You'll want to ask:
• How much the barter company charges (typically a membership fee, plus a percentage of each barter transaction they broker, and possibly a monthly maintenance fee as well).
• Whether the barter company is solid. Check with the Better Business Bureau, as well as with current customers, to solicit feedback.
• How much you're likely to use the service. If you're interested in a one-time barter with a local business, you may be better off facilitating the match on your own.
• Who the other members are. You should review the list of other members very carefully, since this is the pool of businesses with which you will earn trade credits. You'll also want to ask whether the barter broker company that you're considering is part of a central clearing network -- a larger consortium of barter brokers that allows members to secure goods and services outside their own membership.
• How the barter broker handles potential conflicts that may arise when goods and services are swapped. You should also find out what other support services the barter company offers.
Bartering definitely has its perks. Not having to deplete your cash reserves is high up on the list, as are moving inventory, increasing marketing exposure to other businesses, and increasing sales. But whether you want to dive into this new world of bartering matchmakers is something, like all business decisions, that you'll want to weigh carefully. Best of luck with the decision!
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Fool contributor Elizabeth Brokamp has suggested a reciprocal trade with her husband, Robert Brokamp, editor of The Motley Fool's Rule Your Retirement newsletter. She'll keep doing the bills if he keeps doing the laundry.
