To Barter or Not…That is the Question
My sister is the barter queen. Even before the real-estate bubble burst, she was bartering everything from her kid’s clothes and braces, to her CPA fees. Never once while sitting in the dentist chair, with my mouth in pain, did I think of trading plants for needles stuck in my gums. Bartering was a completely ingenious idea to me.
After the housing market crashed, it seemed every business that once had open pockets closed them tighter than Fort Knox. My plans to rebuild my new company from zero clients to fifty was fading as fast as my start up cash. Then I thought about my sister’s tactics and that cash began to stretch. My website was designed completely free in exchange for some house plants and a few arrangements for their clients. Wanting a nice professional graphic design for my business cards but not being able to afford the $400 design fee, I traded the artist for orchids and flowers. His wife adored him for the romantic gesture. I was happy with my professional logo and saved a nice chuck of money.
The Big Barter Deal
My biggest barter deal happened when I was shopping at the mall. Always on the lookout for opportunities, the more I shopped, the more I noticed their interiorscape declining. I approached management and offered my services. Then I realized the sharp decline was due to a corporate decision to cut the indoor landscape budgets in all their malls to recoup the money lost with snow removal with the properties up north. Their cleaning staff was currently handling the plants, and if I wanted to service for free, I had the job. I think the manager thought I was joking when I told him I’d do it.
At the time, I had only two clients and no marketing budget, but what I did have was time. I countered with a free kiosk space that would give my new business exposure with their nine million visitors, the ability to make some retail sales, and most importantly, I could list a prestigious mall as one of my clients. For two years, I did receive good exposure, earned some retail income, booked a couple weddings, and achieved my goal of acquiring more commercial interiorscape accounts because they could easily see my work and realize if I could handle a two story mall, I could certainly handle their building. The deal re-established me as a legitimate interiorscape business that can compete with the larger competition, while the mall saved over thirty thousand dollars a year earning the manager a national award for his smart barter decision that was really mine.
Some good advice when bartering is make sure you add up the hidden costs such as travel, insurance, and most of all your time, which we tend to devalue when we have more of it. Are you dealing with a reputable business that will honor their end of the deal? Am I getting something that I would buy anyway?
My attorney advised me to create a contract as you would with any service agreement. Have as many details and clauses possible to help prevent any discrepancies in the future. Always barter using the full retail value for both your services and merchandise. That way, neither feels one is receiving a better or unfair deal.
Tax Obligations of Bartering
Because money isn’t exchanged, you may think another advantage of bartering is that its tax free. Unfortunately my CPA’s office assured me, this is not true. The IRS wants the fair market value you receive to be reported as income on a 1099-B form during the year it was earned. On the positive side, you can also deduct certain costs you incurred during the barter deal. For more information, you can go to the IRS website and look under their bartering tax center.
The downside for me with the mall deal was spending at least forty hours a month not getting paid and taking time away from other business responsibilities, the increased cost of liability insurance the mall required, and spending a few hours at my chiropractors for carpel tunnel in my hand and forearm. (I did barter a couple of those appointment costs.)
As I acquired more paying clients, the less the barter deal made sense. While the mall paid for the replacement plants, the time I was spending caring for them became more costly. I certainly wasn’t selling enough items at my kiosk to justify sitting there ten hours a day nor could I afford to pay someone to sit there without losing money.
After two years, I gave my notice and the mall changed all their live plants to artificials. When money is tight, bartering can be a great alternative and it definitely helped me achieve my business.
Next week…The Ghost in the Garden
Monopoly Income Tax phot by Chris Potter via https://www.flickr.com/photos/86530412@N02/8266555568/
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