Trade bartering is one of the most effective ways to preserve cash and working capital for businesses that know how to execute this strategy effectively. Barter is by far the oldest form of commercial transaction in the world and remains one of the most efficient. In barter agreements, products and services are exchanged with other parties for their products and services. And everyone keeps their money.
Using barter in your business
1. Advertising and Media
Barter agreements can be very helpful in gaining placement in newspapers, trade publications, and other advertising media. The founder of $100 million newsletter publisher Boardroom Inc talks about how he got his initial marketing outreach started by negotiating with publications to place his ads in exchange for shares (for each subscriber attracted by his ads).
Car dealers can trade radio, television, and newspaper advertising time in exchange for vehicle leases. Service professionals may trade a certain number of billable hours or project work in exchange for advertising placement.
2. Liquidate Excess Inventory or Monetize Capacity
Hotels with extra rooms to spare often trade them in exchange for necessary services. Product manufacturers can often arrange direct exchanges with other companies, or even participate in “triangulation” agreements that feature tripartite trade in goods and services.
Even if you are a service professional selling your own time and effort, there are ways to trade your services. In my business coaching practice, I have shown professionals how to turn their expertise into tradable products (directly and indirectly) that gives them access to the power of bartering.
3. Manage or improve cash flow
Bartering can be a great way to meet your business needs while maintaining positive cash flow. For example, it’s a great way for businesses with highly seasonal revenue or revenue variability to maintain operations without resorting to fairly expensive financial measures, such as asset-based lending or accounts receivable factoring.
It can also be a way to systematically reduce the costs of materials and services from your suppliers. Make a list of your suppliers and see if there are ways to deal with them directly or arrange triangulation. This is especially worthwhile for the products and service providers you use regularly.
Possible errors in barter
1. Inefficient correspondence
It can take a bit of time and effort to find the perfect partner for a barter deal. If you do this wrong, you may find that your barter deal is not worth the time or services you put into it. Take time to think about what you would want in exchange for what you are willing to offer.
2. IRS in trouble
Don’t make the mistake of thinking that bartering offers you a tax loophole. According to the IRS, it doesn’t. Consult with a competent CPA or tax attorney when you are ready to use barter as a strategic part of your sourcing or cost management system.
3. Barter networks and exchanges
The biggest mistake you can make here is to overlook barter exchanges. The next biggest mistake is choosing the wrong one. Be sure to choose your barter exchange very carefully based on the size of your network, the number of members, and even your level of activity.