The Ultimate Guide: When and How to Barter

 
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Limited cash flow solution

When you’re bootstrapping your business, bartering can seem like a great solution to your problem. You may want or need to hire people to help you build, run, or grow your business but may not have the cash immediately available to do so.

I’ve done a ton of bartering. Some went well and many I deeply regretted.

Incase you’re considering bartering in your business, I wanted to share a bartering success story and some disasters along with the five key guidelines I learned from all of this so you know when and how to barter so it helps your business instead of dragging you down.

How to barter successfully

When I owed my coworking space, I did all sorts of bartering. Not all of them went well, but some did. Here’s the story of one that went well.

As the sole owner and operator of my coworking space I was feeling bogged down with the day-to-day office management at the space. I wanted to hire someone to help but didn’t have the funds, so I decided to offer the position to a coworking member. She wanted to increase her membership to cowork more often but didn’t have the funds to do so. Here’s how it our arrangement worked:

  • I boosted her coworking membership up in exchange for an equivalent amount of hours of office management tasks at an hourly rate.

  • I had a written list of tasks in order of priority and she kept track of her hours.

  • We kept open communication about how much work she was able to do in the allotted hours and adjusted for next month as needed.

  • Each month she received an invoice with the amount of her coworking membership on it, comped down to $0 in exchange for her services.

  • I entered the exchange in my financials as an equal amount of revenue and office management services.

  • We both respected the relationship and treated each other like we would if we were paying customers.

  • Eventually, I could feel the presence of tension. She started coming in only to do her office management tasks, did not take feedback well, and seemed very stressed out. I approached her about it and we decided it was time to end the barter. She learned she did not like the kind of tasks the role entailed and started to become resentful about it. Because of that, she dreaded coming in and no longer wanted to take advantage of the coworking membership she was getting in return, further contributing to the resentment since she wasn’t really getting an equal value in return anymore. There were no hard feelings between us and she offered to help out for a little longer on a reduced schedule to give me time to find someone new.

Some barters will cost you more than others

Having a coworking space was the ideal bartering tool. I was trading coworking memberships to people who otherwise wouldn’t have had the funds to take advantage of it. Most people cowork for the community and because we hadn’t yet reached capacity, it was in my best interests to get more people in the door. One way to do that was with bartering.

Unlike bartering with a personal service, like consulting - which requires much more of my time - or with products - where there is an actual cost associated with the production of the item, the variable cost of adding a new member to my coworking space was pretty minimal (most of the costs were overhead that would have to be paid regardless).

It was a win for those I bartered with and it was definitely a win-win for me.

If you are exchanging goods or your time - where there is a much higher cost associated with the value you’re providing - you’ll need to be even more choiceful and intentional with how you approach bartering.

Because the things that I was bartering with didn’t take much of my time and didn’t increase my costs much, my biggest watch-out was to not cannibalize the revenue I was already getting. When possible, I tried to bring in someone new or upgrade a membership in order to barter instead of just no longer charging someone who was already a paying member before the barter.

How bartering can go wrong

Other barters I did with my coworking space and my consulting services didn’t go as well. Here are some of the reasons why:

  1. I thought I was getting a way better deal which seemed good at the time but ended up seeding doubts about the quality of service I’d receive. We ended up ending the partnership after months of back and forth, delay, and disappointing deliverables.

  2. I entered into a short-term barter with someone who would likely have paid for what I was offering anyways. When the barter came to an end, they found it difficult to justify paying for my offering now because they weren’t used to expending the cash.

  3. I wasn’t happy with the value I received likely because we hadn’t set clear expectations with specific deliverables. I felt I had no recourse to to ask for a redo and it was too late to do it over again anyways.

  4. They didn’t take advantage of what I was providing and it affected their willingness to deliver their end of the bargain.

  5. We had originally laid out the specifics of the barter but neither one of us kept good records and because the work took a while to complete, we were left having to re-agree on what felt right towards the end.

  6. While we started discussing the specifics of the trade, somehow our work began without finalizing the details. My role specifically, and the value the other person would get from me, hadn’t been clearly laid out. I felt like a massive IOU was building up and though I was reassured that they felt they were getting value out of our arrangement, I was afraid to truly take advantage of what they were offering because of guilt. I also feared that the barter would end, but I wouldn’t have the ability to pay someone or do it myself to keep up with the systems we had created.

WHAT I LEARNED: WHEN & HOW TO BARTER

Through my experiences I started to see patterns about what made for a good or bad barter. I have also heard many other people’s horror stories of barters gone bad. Here are five common themes I’ve seen in my own experiences and with other entrepreneurs and business owners.

Use these five things as guidelines on when and how to barter and hopefully you’ll end up with only good stories about bartering.

1. Trade for something you’d pay for

The first rule of successful bartering is to only do so if you’re getting something in return that you would be willing to pay actual money for (if you had the money). NOTE: If someone is willing and able to pay actual money for your services, this is always preferable to bartering, even if you’ll also be paying them (but consider exchanging checks to avoid a credit card processing fee).

If someone approaches you to barter, don’t just take the bait. Ask yourself if it’s something you had already considered as a need. If not, the offer will feel like an exciting bargain that’s too good to pass up - kinda like that clearance shirt that seemed like a steal at the time but you never really ended up wearing because you didn’t love the color and it didn’t fit as well as you’d hoped.

You don’t want your bartering arrangement to feel like that so-so colored, improperly fitted shirt…

A yes to bartering is always a no to something else whether that’s giving yourself more time to work on more important parts of your business or getting some much needed relaxation. Regardless of whether you think you have an abundance of time or product now, you are still making a tradeoff in deciding to barter - make sure it’s worth it.

PRO TIP: Before agreeing to barter, research and do your due diligence on the other person and their business like you would for anyone you’d be hiring. Just because they’re willing to barter with you doesn’t mean they are the best fit for you or that you should be willing to trust them to serve you and your needs.

2. Exchange equal value

What your business sells is valuable. You owe it to yourself to only part with your time or the goods you sell for what it’s really worth. If not, it could degrade the value of your offerings. Word could get out that you’ll do work or part with your inventory for cheap and if you hope the person you’re bartering with will be a long-term customer, good luck ever getting them to pay you your true value.

You may become resentful that you’re giving more than you’re receiving and may not give your best in the trade. The same could happen to the other person, so if you feel that they’re asking for less than they should, be wary.

You want to be treated like a real client or customer and that’s not likely to happen if the trade doesn’t feel worth it to one or both of the parties.

PRO TIP: When working out your barter arrangement, have a discussion with actual pricing. Work together to determine what you both need that is of equal value.

3. Treat bartering like a cash transaction

In every way possible, treat the barter like an actual client or customer transaction, especially when it comes to finances.

Whether you manage your finances with an online program like Quickbooks or Xero or use a good ole fashioned spreadsheet, your barters belong in the books. Contrary to popular belief, this does NOT mean you’ll pay more taxes (unless what you’re getting in return is for your personal life, not your business).

This is because as a pass-through entity (LLC or sole proprietorship where the business isn’t taxed, but rather the owner(s) are taxed on their personal returns), taxable income is determined by Business Revenue - Business Expenses. Other than business meals and entertainment - for which you can deduct 50% - all other expenses are counted at 100% of their value. This means that if you barter $2000 worth of your services in exchange for $2000 worth of good or services for your business (other than meals and entertainment), the taxable income from your barter is $0 which means you don’t owe any taxes for it.

When you add your barter arrangements to your books, you can more accurately track your business growth, earnings, and expenses over time. If you don’t include the values of the things you’re exchanging in your finances (aka. business revenue and expenses), it’ll be more difficult to be discerning with whether or not you’re making good decisions on when and what to barter for. Before you know it you could be bartering away all your time or goods for things that aren’t bringing value you actually need.

PRO TIP: Send a real invoice for the services or goods you are providing as you would to a normal customer and include the dollar value. On it, include the services or goods you’re getting in return set for the same dollar value (but negative) so the amount due equals $0. Decide together that when referring other people to your businesses, if asked about pricing, you’ll share the full dollar price you’d charge a normal client.

ADDITIONAL RESOURCES: Step-by-step guide on how to add a barter transaction to your books.

4. Set expectations

Which takes me to my next point about setting the partnership up for success with clear expectations.

When money isn’t actually being exchanged, sometimes you think of that person as a less important client or customer - even if it’s subconscious (this is why I suggest sending invoices). If you don’t deliver your best, it’s not going to be good for your reputation and getting referrals.

You also don’t want to be on the receiving end of a crappy customer experience.

I suggest both parties clearly lay out the scope of work, deliverables, timing, pricing, and expectations. Make sure both parties are clear. I suggest you actually verbalize how, even though money isn’t being exchanged, you both expect to be treated like a paying client or customer and promise to do the same.

PRO TIP: Physically write out all the details of your barter and what both parties are giving and receiving. Include timing, ownership, and pricing and make sure both of you sign it or provide alignment through email so it’s documented.

5. Know when to end it

Even the best laid plans have a shelf life. Here are signs that you should end a barter arrangement or stop bartering all together:

  1. Your business is thriving with paying clients

  2. You are working tirelessly but still don’t have enough cash flow in your business (focus on getting paying clients instead or try to convert your barters to paying clients)

  3. Your barter arrangements are really stressing you out or you resent your barter clients or customers

  4. You don’t feel you are getting enough value in return (regardless of whether you felt okay with it at the beginning)

  5. You are no longer in need of what you are bartering for

PRO TIP: Discuss at the beginning how you’d both like to do regular check-ins to communicate how things are going and adjust as needed. Agree that if you decide to end the barter early, that you’ll give the other party ample notice so no one gets screwed.

How to find more paying clients

A good barter is nice but a paying client is even better. To find opportunities to find more client leads, read my article, Before Creating a Marketing Plan, do Customer Journey Mapping and download my free accompanying template below:

IN A NUTSHELL: Barter Smarter

Here’s a summary of the five guidelines to follow to help you know when and how to barter:

1. Trade for something you’d pay for

Only barter if you’re getting something in return that you would be willing to pay actual money for (if you had the money).

2. Exchange equal value

Only part with your time or the goods you sell for what they’re really worth - meaning what you give away should be an equal dollar value to what you’re getting in return.

3. Treat bartering like a cash transaction

Pretend you’re exchanging real money - just equal amounts of it. Enter it into your books and send invoices this way.

4. Set expectations

Clearly lay out the scope of work, deliverables, timing, pricing, and expectations IN WRITING and make sure you both agree to treat each other like paying clients or customers in this way.

5. Know when to end it

End a barter arrangement or stop bartering all together once your business is thriving, if you feel resentful with the people you’re bartering with, if you’re working too hard for the amount of cash flow you have, or if you no longer find equal value in what you’re getting in return.

Land paying customers instead

A good barter is nice but a paying client is even better. To find opportunities to find more client leads, read my article, Before Creating a Marketing Plan, do Customer Journey Mapping and download my free accompanying template below:

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stacy kessler - pathfinding strategist

Hey There!

I’m Stacy Kessler, an entrepreneur, strategist, and adventurer dedicated to helping you figure out how to craft a unique, compelling, and profitable business you love around your expertise and passion.

You are meant to do important and amazing things in this world and I’m here to help you do just that.

A NOTE ABOUT FINANCIAL ADVICE

*Please note that I am not a professional tax preparer, accountant, or bookkeeper. I am an entrepreneur and business owner sharing what I’ve learned about bartering with my businesses. You are still responsible for ensuring you are properly managing your business’s finances and complying with tax laws. This article is for informational purposes only and is not intended to replace the need for a financial professional or to provide official accounting or tax advice.

 

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