Cash Flow Crisis? Give Bartering A Try
Bartering is a tried and true (and ancient) business practice. It is still commonly used in many countries in every day business interactions. For whatever reason, it is not as common in the U.S. but this doesn’t mean it should be forgotten altogether!
If your small business is still afloat but you find yourself short on cash, give bartering and honest look. There are many barter exchanges which you can join and here’s how it works:
Step 1: Research the barter exchanges. Like I said there are a lot out there so do some research and pick the one you think will best suit you based on other members and how much you want to pay to join. You can find lists of these exchanges at nate.org , irta.com or itex.com .
Step 2: Join your chosen exchange. There are a wide variety of membership fees out there. Some have a one time fee of $800 for new members while others charge a much lower monthly fee in the $10 to $30 range. In addition to the fees, there can also commissions involved which, if you are a low-margin business, would make bartering a money losing venture. Run the numbers and find out.
Step 3: Barter away! You will receive "barter cash" for your and work you do/goods you offer which will be good only within the exchange you join.
Keep in mind these important factors (compiled by BusinessWeek.com ) when getting involved in a barter exchange:
Joining an exchange does entail costs, including fees and commissions. If you run a very low-margin business, those commissions may make bartering a money-losing proposition. Every business will want to limit its barter business to 5% to 15% of total revenue so that cash flow remains at healthy levels, says Ron Whitney, executive director of the International Reciprocal Trade Assn. (IRTA), a Rochester (N.Y.) nonprofit that promotes barter. And if you are bartering one-on-one, be careful. Misunderstandings can arise if you don’t have a formal contract. Then there is the IRS: Barter deals have to be treated like regular cash sales in federal and state filings. If a business owner uses barter services for personal reasons, the cost of the item is considered compensation on your income.
If anyone has tried this, I’d love to hear how well you think it works?
Posted on May 27th, 2008 in Finance and Accounting |
