What we're talking about
Bartering is a cashless exchange system, where two parties trade goods or services directly, without money entering the conversation. It might bring to mind medieval marketplaces, but bartering still occurs a lot in the modern business world – typically in the shape of trading space, services or supplies. A design agency, for example, might offer a branding consultation in return for some time in a studio. Two businesses can set up a barter directly, but plenty of deals are facilitated by online or offline barter exchanges.
Why it's important
Clearly, the big benefit of bartering is that it allows you to access another business' product or service without parting with precious cash. With cash flow always critical, this is one way of obtaining value without spending; it's little wonder that online barter exchanges have reported serious growth since the start of the pandemic. You can extract value from parts of your business that might otherwise have gone unused, and increase your network and brand visibility while you're at it.
But you need to be super careful about what you offer and look to receive, and who you barter with. Sometimes the value of the exchanged goods doesn't match up; sometimes people end up bartering away capacity they really need for their customers. Planning is key.
Things to note
• Understand the difference between direct bartering and a barter exchange. Direct bartering works when you already have a company in mind that is open to bartering, has what you want and wants what you have. If that's not the case – or if you're in the market for multiple barter contracts – a barter exchange is the place to head. It's a service that helps you find what you're looking for and operates via trade currency. If someone wants your goods, you'll get this currency, which can then be spent with any of the exchange's members. Though you have to pay some fees, it can be worth it for the increased flexibility. You can also search for offline groups via your local business communities.
• You may still have to pay taxes. If you're in the US, you'll have to pay sales and income tax on barter transactions, since the IRS views them as equivalent to cash transactions (here's more info on that). Wherever you are, ensure you're clued up on your country's laws. You'll also need to keep tight records of what you're bartering and when, and any expenses incurred.
• Check that your partner wouldn't pay with cash. If you're on the receiving end of an approach, you shouldn't offer to barter until you're totally sure that a normal transaction won't happen. Research might indicate that the business approaching you fits the bill for your target customer, in which case you should try selling at market rate and then a discounted rate. This way you'll avoid devaluing your product or service, and missing out on sales revenue.
How to set up a barter
1. Decide what you can offer. Don't waste time wondering about what you can gain without first establishing what you can give. Write down a list of all your business' assets, from what it actually does to what it requires to operate, and determine how much you could afford to give away in each area. That could be your product or service, your time or even physical space.
2. Estimate value. It's not just about the number of hours or number of units you can trade; you'll need to work out their appropriate value, too. This is an inexact science, but you need to land on a rough figure (whether that's per unit, per hour or per service), so you can look to exchange with something of equivalent value.
3. Work out what you need. As a general rule, this should be stuff you would pay cash for, if you had enough of it. Working out what you need before browsing helps ensure you don't end up with anything superfluous. Create a list of everything available via barter that would genuinely advance your business. Then, pick one or two ideas to pursue. Choose the ones that you most urgently need and that promise the most added value for where your business is at.
4. Consider a direct partner. Arguably, you should fully explore this option before you turn to a barter exchange – particularly as a first-timer. It's free and more personal, offering a chance for meaningful networking. Take account of founders that you already have (non-customer) relationships with, or have been meaning to reach out to for a while, and try to spark some initial conversations.
5. Or find an exchange. Barter exchanges exist both online and offline. Some will be listed in the member directories of standards organizations, like the International Reciprocal Trade Association and the National Association of Trade Exchanges. This shows that they're legit, but you should also look into whether they specialize in small business bartering, charge fees (for membership, per transaction and so on) or offer built-in benefits, and research testimonials and the kinds of members they have – as well as what and how often they trade.
6. Research the business you're working with. Now's the time for some due diligence. This won't be as necessary if you're dealing directly and already have a relationship but, if you're using an exchange, you'll want to make sure they're legit. This guide is a good starting point. You can also get a decent sense of what a business is about from its digital footprint.
7. Speak with them. A sure-fire way of discerning another company's validity is by speaking to its team. One option is to set up a speculative meeting and discuss bartering as one of a few options. In the meeting, if a barter is on the cards, ask the critical questions about quality, delivery and accessibility. Make sure you're prepared for their questions, too.
8. Negotiate. Value isn't a fixed concept; it can be changed to a certain degree, relative to who you're pitching to. Ultimately, you should reach what feels like a fair exchange for both parties. It's actually a good idea to avoid a deal that's too weighted in your favor, to avoid feeling indebted or fielding resentment from the other business further down the line.
9. Define your terms in writing. Alongside standard reconnaissance on legals and taxes, you'll probably need to get a lawyer involved to draw up a contract. Set your expectations – and how you'll measure whether they're being met – in advance, alongside the key details of the exchange. Then get going.
• Bartering is a useful way to keep your business progressing when you're low on cash, or simply looking to make use of the resources at your disposal.
• You'll need to do the same amount of background research as you would do if cash were changing hands.
• Make sure you truly understand the cost and value of what you're giving and receiving. Both parties should be happy with the deal – and commit to it in writing.
Perspective. In this piece, Entrepreneur magazine speaks to experts Steve McHugh and Antonio Palazzola, who are behind a TV show called Barter Kings, about getting what you want out of bartering.
Example. Tech writer Esther Schindler shares some examples of bartering in small businesses here.
A version of this article was published in the Courier Workshop newsletter. For more deep dives into essential business concepts, sign up here.