Bartering your services can be a useful strategy for self-employed professionals, especially when your business is young. By arranging trades for certain professional or personal services, you can obtain what you can’t afford to buy, save money, and avoid incurring extra debt.
To make a barter arrangement work well, a few simple rules will help. First, your trade should have defined terms, both parties should agree to what those terms are, and the services traded should be of equal value to both of you.
Start by comparing the regular prices each of you charge for what you’re trading. For example, one hour of graphic design at $80 would be worth two hours of bookkeeping at $40.
Then make sure that each of you actually needs the service being traded. If one of you has no immediate use for what the other is offering, a barter is usually not appropriate. Situations change, and the person who offers you several hours of their time this month may not be able to follow through months later when you need them.
When proposing or agreeing to a barter where tangible items are involved, remember that there is a dollar cost attached to physical goods, whether this is their wholesale price or the cost of materials. You must take this into consideration when arranging your trade. So, in a trade of business coaching for carpentry work, the coach would need to pay the carpenter for the cost of the materials to be used, either in cash or additional barter hours.
No matter what amount of time and money is involved, put your barter agreement in writing. An email spelling out the arrangement you have made will avoid misunderstandings later on. If your trade will be going on over a period of time, keep track of who owes who as you go along. Don’t let one of you get too far ahead of the other, and therefore end up owing more time than can be paid back quickly.
Whether or not to barter is a choice each business owner gets to make for themself. You shouldn’t expect others to barter, or allow them to require it of you. You don’t need to give a reason to refuse a trade you don’t wish to make. Saying, “No, I can’t do that right now,” is enough.
If you are planning to ask someone to barter, be sure to tell them so up front. If they are not interested in trading with you, and you can’t pay, it’s inconsiderate to take up their time discussing using their services.
If you like the idea of barter, but don’t want the headaches of setting up and managing a private arrangement, consider using a barter exchange service like BizX or ITEX. These services allow you to bank barter credits and then spend them with other exchange members.
Keep in mind that the U.S. Internal Revenue Service and Canada Revenue Agency expect you to report income that your business receives in the form of products or services. You are required to include this kind of business income on your tax return.
You may also be required to file a tax document (Form 1099 in the U.S.) for services you provide someone else in a barter, if the value exceeds a certain amount (currently $600 in the U.S.). Yes, people do skirt these reporting requirements, but you should be aware that they exist.
There are two pitfalls to look out for in bartering. If one of you is dissatisfied with the other’s work, the trade can go sour. If this happens to you, end the arrangement immediately; it’s not going to get any better. And if you do a lot of barter work, be sure that you are leaving yourself enough time to also generate paying business. Your credit card company is unlikely to accept barter to pay your bill!