People ask me this question all the time…the answer is a resounding yes. But the more important question for business owners to consider is just this:
Let’s answer why business owners should care about bartering and how it is done in today’s modern economy. Keep reading for a crystal clear picture of:
In its most basic definition, bartering is the trading of goods and/or services for those of another. But in a day and age of cash, credit cards, and gift cards, why try to conduct a transaction that doesn’t involve some form of liquid currency?
The primary reason companies barter is because they save cash which improves their profit margins. Companies can leverage the cost of what they produce to obtain items they want and/or need without paying normal cash prices. The savings they realize (regular cash prices minus their cost of goods/services delivered) equals extra profit.
When it comes to business-to-business (B2B) barter and trading, the positives make bartering worthwhile, but what are the specifics of how it works?
There are 2 primary means of conducting business barter transactions, and they both have their pros and cons. The First method is the original 1-to-1 barter arrangement; the second is by using organized barter exchanges.
1- to-1 barter is simple; it involves just two parties that have a reciprocal interest in what each other provides. My earlier example of the orthodontist and the restaurant owner is a perfect example of a 1-to-1 barter transaction. All this method takes is finding a willing partner and coming to a handshake agreement on what each of you is willing to exchange.
“Bartering for goods and services can be a shrewd business Move.”
– Business Week Online
Here are the positive points of a direct 1-to-1 barter transaction.
In contrast, here are some of the negatives of a 1-to-1 barter transaction to be on the lookout for:
Many business owners obtain the benefits of bartering through the use of organized barter exchanges.
Organized barter exchanges came into existence about 75 years ago and have continued to gain in size and popularity ever since. Organized Barter exchanges are generally closed membership groups with thousands of companies as members and the bartering takes place only between the members themselves.
Here are some of the key differences between barter exchanges and 1-to-1 barter transactions:
While the extra costs of organized barter may not appeal to some, there’s a reason why so many companies are willing to pay them. In most cases, the positives of participating in Organized Barter Exchanges far outweigh some of the higher costs.
Here’s a listing of the most prevalent reasons:
If anything goes wrong with a transaction, there is some limited recourse available to help achieve a resolution with the other party involved.
Taxation – everything is properly accounted for and reported to all parties involved which protect companies using heavy amounts of barter from negative tax reporting issues. Just give the reports to your accountant and you are good to go.
If you are a business owner that wants to grow their business, and you have any extra capacity or inventory that is not currently earning you cash revenues (think the spare time that can be used towards working on another project, empty tables at a restaurant, or idle inventory taking up shelf space), then barter is an extremely effective tool to help you reduce expenses and increase cash profits.
The question is how do you most efficiently take advantage of barter. 1-to-1 bartering is most efficient when you have partners you trust and are readily available and interested in trading. If you don’t have easy access to those partners, organized barter exchanges might be a better option for you. Organized barter exchanges also have the added benefits of increased brand awareness and larger marketing channels for new customer acquisition.
Either route you choose, getting into the habit of turning barter into an everyday part of your business operations will be invaluable as we move forward in an economy with many questions and concerns over its stability for the upcoming years.