Why buy when you can barter?
The age-old method of swapping your goods for another company’s services reduces expenses, preserves cash and provides a valuable boost to the bottom line. But enrolling your business on one of many online barter exchanges that are springing up provides yet another benefit: free advertising.
“It allows you to showcase yourself,” says Carmine Bello, owner of PermaCharts Inc., a Toronto-based maker of laminated information guides. “I use it at a much higher level – I use it to open up doors.”
Indeed, business people who have adopted bartering talk about it with almost an evangelistic fervour. “People find out about you who would never have thought of you before,” says Philip Spry, author of 19 Ways To Survive: Small-Business Strategies For A Tough Economy and owner of a Phoenix-based computer-services company. “You get to advertise for free and essentially get paid for it.”
Mr. Spry says a spontaneous inspiration led him to try bartering at his business some years ago. A plumber came in for computer repairs on the same day his shop ran into some toilet trouble; Mr. Spry proposed a swap of services. The plumber finished the repairs while waiting for his computer and Mr. Spry was sold on bartering.
Other advantages soon became apparent: Mr. Spry figures there are times his employees have enough work for perhaps 90 per cent of their day. Rather than have them “wasting time on Facebook,” if he accepts a trade of services, he’s obtaining something at retail value, rather than paying cash, in return for a small, marginal cost.
Last year, for instance, rather than paying a $4,000 (U.S.) annual cash bill to get his taxes done, he found a new accountant on the exchange willing to perform the task for a for $1,200 trade in computer repairs – which, at the hourly pay for his technicians, actually cost him a fraction of that amount.
While Mr. Spry started his swapping informally, many businesses that decide to take the plunge join one of a growing number of “bartering exchanges,” middlemen who speed the process by matching buyers and sellers. As a member, their goods and services are introduced to businesses that haven’t considered them in the past. “You have a new source of customers and clients for the one-time cost of joining the network,” Mr. Spry says.
One of the advantages of exchanges is that a participant doesn’t have to wait for a suitable trade – they can bank barter credits, then use them as the need arises.
That’s what Maria Rekrut of Niagara Cottage & Spa has been doing for more than 20 years. Ms. Rekrut participates in the St. Catharines, Ont.-based Certificate Club, where she offers vouchers for her bed and breakfast. As exchange participants claim her vouchers as their reward for other trades, she builds up credit.
“I use trade for absolutely everything,” Ms. Rekrut says: wine, hard goods, computers systems and bookkeeping services for her business, as well as travel, restaurants and clothing for herself. Christmas gifts for her friends, too. Off the top of her head, she couldn’t quantify how much trading she does each year. “Let’s put it this way – a lot.”
Gord Hardy founded Certificate Club in 2003 after years of bartering through his previous business, which sold cleaning supplies. The name was inspired by one of his target industries: restaurants and hospitality businesses, which often sell gift certificates.
Since an exchange is only as good as the number of honest participants with goods and services to offer, Mr. Hardy enrolled Certificate Club in an exchange network called DoBarter, enabling his members to swap with businesses in one of 200-plus exchanges around the world.
There’s no fee to join Certificate Club, but there are fees on each transaction. In a typical trade, Mr. Hardy charges Business A 5 per cent on what they’ve “sold” on the exchange, and 5 per cent on what they’ve “bought.” He then charges Business B, the swap partner, 5 per cent on what they’ve bought and sold. Each business ends up paying $10 on a $100 transaction, giving Mr. Hardy $20 on the exchange.
That means the exchange is best used by a high-margin business, Mr. Hardy cautions. “If you have a low-margin product or service, it doesn’t benefit you. Once you’ve paid your fees, you’ve lost money.”
On the flipside, Mr. Hardy believes bartering is an excellent way for a business to rid itself of aging inventory that might otherwise have to be liquidated.
One important caveat: Revenue Canada considers barter transactions to fall under the Income Tax Act. If you trade goods or services, you must report the sale as income and pay the appropriate taxes. That means participants must take care to document all barters, although some exchanges will provide detailed documentation for you, Mr. Spry says.
According to Revenue Canada, the value of bartered goods and services “must be brought into the taxpayer’s income where they are of the kind generally provided by him in the course of earning income from, or are related to, a business or a profession carried on by him.” An example: The value of groceries given by a grocer to someone in exchange for something else must be considered a sale, with the cost of the groceries considered an expense.
If a business trades capital property in a barter – Revenue Canada’s examples are “a valuable painting, a sailboat or land” – it may also trigger a capital gain.
Paperwork aside, bartering provides a number of advantages besides an expanded client base, says Mr. Spry. It may also allow you to cash in on underutilized parts of your business. Mr. Bello’s company, PermaCharts, for instance, performs some functions internally, such as graphic design, that aren’t core enough to be offered to paying customers. They’re good enough, however, that he can offer them on barter alongside his primary product. In fact, “services you aren’t set up to do well in for cash may be easy to barter.”
But be prepared: Even though barter exchanges have a number of participants, choice in any given industry is limited. Often, you must expect just one or two providers in certain categories, such as computer repair or bookkeeping, Mr. Bello says.
Still, he argues, “good barter people are good people. People have to be on their best behaviour.”