Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9pm ET. This is excerpted from my recent interview with David Fling @ItexKansasCity. David is the owner and CEO of three successful ITEX trade exchange franchises located in Kansas City, MO, Tulsa, and Oklahoma City, OK. ITEX is a nationally known trade corporation. David assists member businesses in the buying and selling their products and services with other members through trade instead of monetary transactions. For more information http://www.kansascity.itex.com
SmallBizLady: What exactly is barter and trade?
David Fling: Barter and trade can be defined as an exchange of goods and/or services between individuals or businesses without any monetary payment being made. The Latin term, quid pro quo, “something for something” is the original definition of bartering. Direct, or one-to-one bartering, happens when two parties offer to exchange with each other exactly what each other wants at a similar value and quality. What bartering is NOT is a method of haggling or negotiating prices.
SmallBizLady: Is bartering an accepted way of doing business?
David Fling: For centuries, merchants, countries, and even kings have been known to exchange goods to get what they needed or desired. Fast forward to the 21st century, and you will find barter and trade being highly utilized. In today’s economy and the ever-evolving digital world, exchanging goods and services with another business or individual is a vital means of commerce.
SmallBizLady: Why should a business decide to engage in bartering?
David Fling: Bartering can be an effective way of introducing (marketing) any enterprise’s product and/or services to new customers. Another beneficial aspect of bartering is the principle of maximizing and utilizing an enterprise’s unused capacity/downtime. Using barter, almost any type of business owners can trade their excess inventory that might otherwise become stagnant. Service providers might make trades during slower periods in their year. Their excess time, inventory, and capacity can be converted into profits while reducing some cash expenses.
SmallBizLady: Can bartering save a business money?
David Fling: Another key point about bartering is that it can help a business in managing cash flow. Instead of the owner spending dollars to purchase some goods and services, they may be able to exchange or barter to get them. Cash can be conserved to pay for other expenses when needed. Bartering has the potential to provide beneficial returns on minimal investment. Businesses that barter are leveraging their actual cost of goods to purchase a retail item, thus the cash savings.
SmallBizLady: Are there guidelines to follow when using barter and trade?
David Fling: For a barter transaction to be labeled as successful, it should be fair and agreeable to all involved, and trackable. In advance of the trade discussion, money values of the products or services being offered should be determined. The businesses or individuals should then agree on what is being bartered and define other details. A written trade agreement could be signed and followed, so everyone is pleased with the outcome.
SmallBizLady: What is a barter and trade exchange?
David Fling: Barter networks or trade exchanges such as LeTip, BNI, or ITEX, which are membership organizations comprised of a variety of businesses that are willing to exchange their products and services with other members. The Owner/Broker of the exchange helps to facilitate trades for members. He or she manages the exchange with the assistance of a Trade Director. They advertise members who are selling products and services, contact potential buyers, hosts member trade receptions, send weekly newsletters to members, and brings new businesses into the organization.
SmallBizLady: How does a barter exchange operate?
David Fling: Trade exchanges use a unit known as barter or trade dollars. The virtual currency is equal to the value of the US dollar. When a trade is made between members, the seller receives trade dollars from the other member’s trade account. It is deposited into their online trade account just like a cash check transaction. Member businesses can spend their trade dollars with other members only, not necessarily from the member that purchased from them. Some trade exchanges typically charge a one-time membership fee. There is also a modest transaction fee charge per each trade in addition to monthly association dues.
SmallBizLady: What are the benefits of a barter exchange membership over direct bartering?
David Fling: Attempting to direct barter with other businesses can be time-consuming when trying to find the right trading partners. It may not be possible for a business owner to locate another business ready to make a trade with them. On the other hand, trade exchange members welcome bartering. They offer a variety of both business and consumer products and services. Using an exchange’s online member directory, business owners can find what they need, then facilitate a transaction, or they can contact the Broker or Trade Director for assistance in using their trade dollars.
SmallBizLady: Is barter and trade taxable?
David Fling: Barter and cash transactions are the same in the eyes of the Internal Revenue Service (IRS). Both are taxed equally. In fact, bartering exchanges must report goods and services sold through barter to the IRS. As barter sales are reported as income by the members, the IRS also allows them to deduct business expenses paid with trade dollars as if they were paid in cash. When done properly, there is no tax advantage or disadvantage to trade, just transparency.
SmallBizLady: Can a business acquire new clients and customers using bartering?
David Fling: Bartering can be beneficial in new business development because it can help an enterprise build their network. For example, through trade exchange, owners can potentially tap into a different market of customers locally or nationally. Some barter transactions may lead to mutually beneficial partnerships between business owners.
SmallBizLady: Can you give examples of businesses successfully bartering with each other?
David Fling: In one example of how bartering works, Larry Miller, the owner of Larry’s BBQ Joint, is a member of a trade exchange. He contracts with Sally Jones, owner of Super Speedy Printing, for 1000 color menus. After the order is fulfilled, trade dollars are deducted from Larry’s trade exchange account and are added to the Super Speedy’s account. As Sally is not a fan of BBQ, she normally would not barter with Larry’s restaurant. Sally chooses to spend her trade dollars on a sales training course to grow her client base. Each business has fulfilled a need without spending money!
SmallBizLady: How else can a small business leverage bartering?
David Fling: A savvy business owner may use goods or services he has bartered to thank his employees for their good work. He might also incorporate the items as a part of a compensation package. Many companies are known to conduct barter bonus programs using bartered restaurant certificates, spa days, concert tickets, and even resort trips to reward employees who met their goals for the year. Your employees will thank you for doing this!