Though the concept of bartering – the equal trade of good and services – is an age-old idea which precedes the regular use of money and coin for payment, it is being reinvented in the mostly digital global marketplace. This blog will explore the concept of bartering, and ask whether it is an effective new business model, particularly for entrepreneurs, start-ups, and small businesses.
In an article for Harvard Business Review, the International Reciprocal Trade Association reported that in that “in 2011 over 400,000 companies worldwide used bartering to earn an estimated $12 billion on unwanted or underused assets.” In recent years, bartering has been used as a method for companies to create value for assets that may no longer fit the corporate strategy, may no longer be working at capacity, or are no longer needed.
Considering this, bartering groups have been set up around the country in order to create trade exchanges for small businesses and start-ups. For many smaller businesses, trading for services through a bartering group or organization allows for the company to swap for needed goods without having a huge capital outlay.
Bartering services, such as Craigslist, give small businesses the opportunity to generate new customers and receive completed work without high costs. In an article for Forbes Magazine, Patrick Hull argues that, “It’s a creative way to save money and can help establish good relationships with suppliers, vendors, referral sources, etc.”
However, there are risks to participating in a bartering exchange. The IRS has a specific page dedicated to explaining the taxing of bartered items, and insists that bartered goods are considered a taxable income based on fair market value. Barterers need to be aware that they are liable for income tax and self-employment tax.
There are also liabilities to consider when finding businesses who are willing to exchange goods. Entrepreneurs who have spent several years navigating the difficult world of bartering insist that the two most important factors of a successful transaction are an equal and fair exchange of goods, and respectful and open communication.
Taking these factors into consideration, it is possible that bartering for goods and services may help your business advance without incurring a significant level of debt or requiring a bank sponsored loan. Do you need a new website? Find a web design company that may need your services and start to explore the potential of bartering. New and innovative approaches to business are what moves the market forward. In some ways, returning to the ways of the old world will help fashion the new.