There might come a time in your business’s life when you want to barter your services. In fact, you may find it prudent from time to time to trade your services for the services that another business offers. It helps to have a plan in place for this and to have some safeguards against overextending your services beyond what you can support. After all, if you barter all of your services all of the time, then you’ll never earn an income.
When Bartering Doesn’t Makes Sense
Many businesses decide it’s time to barter when they don’t have the income or can’t afford the services they really want to purchase, or need to purchase, from another business. This is a really bad idea. Bartering should never be done solely on the basis of your budget or on an emergency ad hoc basis.
It makes better business sense to barter for essential business services rather than to barter for services that are luxuries or that are primarily personal expenses.
For instance, let’s say your pipes burst at your home and you find yourself in need of a plumber. It’s an emergency situation and if you don’t hire a plumber fast, you’ll be displaced and will have to move your family out of the house and into a temporary living situation. That certainly would be a bad thing. But should you barter your dog grooming services right now? Do you really want to trust your plumbing to the only person in town who’ll do the job if you shampoo their poodle?
When Bartering Actually Does Make Sense
Bartering services is best reserved for when you were going to make a purchase anyway. So instead of bartering your dog grooming services for an emergency plumber, you could establish an agreement with your shampoo supplier. You know you’re going to need shampoo to run your business. So offer to perform a pet pedicure in exchange for an equal value of shampoo each month.
Before you enter into any bartering agreements, however, you must first set a value for the services you are trading. Trade only on the retail value of your services, not their costs.
What To Consider Before You Make A Trade
Other considerations you should weigh when determining whether or not to barter your services include:
- How much should you barter? Don’t go overboard. Only barter what you feel comfortable with financially. A good rule of thumb to use is to establish a limit on the value of services you are willing to trade. Say, for instance, if the value of the service is more than $100, then the answer is an automatic “No.”
- Set a limit on the total value of services you are willing to trade for a given period (e.g. No more than $1,000 between all trade partners per quarter). Alternatively, you could set a limit on the number of trade partners.
- Is the service you will receive essential to running your business? If not, you should probably pass.
- Can you trust a potential trade partner? You should only enter into trade agreements with business owners with whom you have done business in the past or have a reasonable expectation that they will fulfill their end of the bargain. You shouldn’t barter with people you just met.
- Don’t enter subsequent agreements with trade partners until they have fulfilled past agreements.
- As always, get your bartering agreement in writing and make sure all of the details are spelled out.
- Check with your accountant to find out how to record and report bartering deals to stay in compliance with IRS laws.
Consider all trade agreements just as you would any other business agreement and make sure you annotate all exchanges. You and your employees will spend time performing services for your trade partners, so there are still expenses to be accounted for, and you want to make sure you get a return on that investment. If the services you receive in return do not result in a net positive for your business, then it likely isn’t a good trade arrangement.
As mentioned earlier, stay away from trade agreements that mix your personal finances with your business finances