The other day I was telling my son about someone I was trying to recruit into my barter exchange. To my surprise he said he hoped they won’t join. When I asked him why he said that too many of the businesses that I barter with go out of business. I couldn’t help but laugh out load. He’s right! Too many do go out of business and I think I know why.
First, let’s be honest here; cash is better than barter. Yes, I said it…. and it’s true. So with that in mind, any business that already has all the cash business they can handle shouldn’t bother with barter. So the businesses that should be using barter are the folks who would like more business than they currently have. Many of the organizations in that category are great healthy businesses that simply have some excess inventory or service capacity that they want to take advantage of. These are folks with vision who can think outside of the box and are interested in new ways to expand their business. Those are generally the best people to barter with.
Another group of potential barter partners are the folks that have businesses in various stages of failure. These are folks who are using barter in desperation because their business is going so badly that they are willing to try anything to keep it afloat. As you may have guessed these are less than ideal people to barter with. Not only are relationships with these businesses often short-lived, but it is not unusual for people to be more …. morally flexible… as their financial situation goes downhill.
The solution is simple; Use barter as one of your many tools to keep your business profitable so you never fall onto hard times. Use it early. Use it often. Find a mentor who has experience with barter to help you get the most out of it. Businesses that I’ve bartered with don’t fail because they trade. They do however sometimes fail because barter was their last resort.
I keep track of barter transactions to the penny. OK I admit it. I can be a little uptight and “Type A.” Personally I blame my mother. I remember borrowing money from my parents when I was little. I little paper IOU was posted on the fridge and it was slowly reduced penny by penny until it was paid back in full. Not a single cent was ever forgiven. And I’m not complaining about that. It just helps explain who I am.
Anyway… personally my advice is to conduct your barter transactions in a very professional way. That means that both parties need to agree to the cash value of the trade, contracts are signed and both parties are assured to received the correct value for what they’ve traded. It’s very rare for me to run into a disagreement about a trade, but when it does happen, I’m always happy to have a written agreement and a set value for our trade. I also believe that good accounting helps avoid issues in the first place. It’s harder for someone to feel like they got the short end of a stick if they are looking at a statement that shows the details of each transaction.
Another reason that good bookkeeping is important for barter is to keep the IRS happy. Although I heartily encourage everyone to conduct tax planning and legally avoid as much tax as they can, barter is NOT a tax dodge. Remember to report all barter income on your 1040 exactly the same way you would your cash income.
I have found that keeping good records as an active trader is challenging. My two secret weapons in this area are: 1) A good book-keeper who understands barter (tough to find by the way) and 2) A barter exchange that will do a lot of the book-keeping for me.
Let me know if you have any questions on this topic and keep those pencils sharp!
For those of you who are not familiar with the concept, a time bank is a form of barter organization where members “bank” credit by doing hours of work for other members and can then purchase other member’s time with those credits. Although I haven’t been directly involved with a time banking organization, my wife has performed some trading this way that has worked out really well. My wife is a nail technician and she often does the nails of a local massage therapist. As you may guess, getting a massage is much more expensive than having your nails done so it would be very lopsided to barter at cash value. Instead they roughly trade their time. A massage takes about twice as long as nails so my wife gives her massage therapist two gift certificates for each massage she receives.
There is also a life philosophy that is lived out through time banks. At it’s most basic level, trading time values everyone’s time equally. Although I would be the first to acknowledge that all people (and their time) have great value and that no one person is any more important or valuable than anyone else, it’s difficult to live that out in the marketplace. For example, I have a hard time justifying a brain surgeon and a landscaper trading hours. It’s not that I don’t value a landscaper or his skills. The truth of the matter is that the surgeon had to invest a lot more time and money into his profession than the landscaper and his skill set is much more scarce in the marketplace.
Bottom line is that I like the concept of a time bank, but I think it works best for folks that are earning and spending hours of approximately the same value in the cash marketplace. It can still work when the values are uneven, but in those cases the member with higher cash rates will need to look at the time bank as his own personal social justice program the same way one might look at pro-bono work.
You may have heard earlier this month of “Free Money Day” (freemoneyday.org). The organizers of this event were promoting a day where people world-wide were encouraged to give away money to complete strangers to promote something called a “sharing economy.” Although not directly related to barter, I’ve run into the concept of a “sharing economy” multiple times in my life and think it’s very interesting. The concept is to give away products/services with no expectation of receiving anything in return. For example, participants of Burning Man are encouraged to provide products/services to each other free of charge during the event. Not only is cash strongly discouraged, but barter is as well.** Before you dismiss this as a Utopian hippy-dippy idea, there are some practical applications of this approach in the real world.
In my life I participate in a sharing economy with people that I have the closest relationships with. For example, I will often do things for (or give things to) friends or family without expectation of reciprocation. I also partner in business with a consultant where we often do things for each other in business with little expectation of receiving something in return. There is something interesting going on here physiologically because it’s easier for me to give freely to people who are close to me that I feel will not take advantage of me. This really doesn’t add up because if you are truly giving without expectation of return then it’s impossible for anyone to take advantage of you.
I think also it’s important to differentiate between a true sharing economy and a loose barter arrangement. It is very common for people to barter with each other without tracking the details of who did what for whom. Because there is a general expectation that everything needs to “come out in the wash” in those situations, it really doesn’t qualify as giving w/o expectation of return.
You can learn more about the sharing economy in that most-dependable-of-all-resources, wikipedia: https://en.wikipedia.org/wiki/Sharing_economy
** I’ve been told the only things that are allowed to be sold at Burning Man are ice and coffee (the necessities of life there).
The longer I’ve been bartering as a business strategy, the more I come to a conclusion that I don’t like: There are people who don’t understand barter, and they probably never will. They just don’t get it. It doesn’t matter how many times you explain it, what analogies you use, or how advantageous a particular deal might be to these people. They are often fear-driven and cannot get past untrue preconceived notions. These are the folks that think that barter is a tax-dodge, or that it’s a slippery used car salesman technique. To these people barter is by definition unsavory, dishonest and even criminal.
Ug. These people drive me crazy!!!! I think the reason they bug me so much ISN’T because they have the wrong idea about barter. That’s actually not a big deal. Most people don’t have an in depth knowledge of barter. What makes me nuts is that I’m often unable to help them understand the reality of barter; how good, honest and profitable barter can be. It’s almost like there is a barter gene, and people either have it or they don’t.
So….what to do? You have a great trade lined up that’s a win-win for both parties, but it turns out that the person (or persons) you are dealing with just doesn’t “get barter.” I wish I had a magic answer for you. The way I see it you have two options, neither of which are particularly good:
1) Walk away. This is definitely the low-blood pressure approach that saves time and stress. Unfortunately it also means you are walking away from a mutually profitable deal. I’ll say it again: Ug.
2) Try to work with them anyway. You may be able to talk them into the deal. It is, after all a good deal for both parties so it seems reasonable that you should be able to show them the benefit of the transaction. Their are a bunch of downsides to this approach though. Firstly this kind of sale totally stresses me out. Life is short. Is it really worth it? Secondly, you could be unsuccessful in selling the deal which means a big waste of your time. Thirdly, you may actually make the transaction, only to find out later that they were only begrudgingly “sold” on the idea and still don’t really grasp why the deal was mutually beneficial. In that case you can forget ever trading with them again. Plus when that happens I personally want to stab my own eyes out.
When I read over the two options above it seems obvious to me that the “walk away” option is the wiser of the two, and yet I often find myself in the potion of trying to barter with people who are uncomfortable with the concept. Clearly I can’t take my own advice. The good news is that there are plenty of people who do understand barter and are happy to do it. I’m much happier when I stick with those folks.
I’d love to hear back with advice from my readers!
I’m a big believer in optimism and giving your fellow man the benefit of the doubt. That being said, not everyone is a pillar of their community and I’ve learned that Caveat Emptor (buyer beware) is a good mindset to have when dealing with new barter partners. When you are making trades with folks you don’t know, watch for red flags that indicate that they might be trouble. I’ve found that folks that are interested in making illegal transactions (selling drugs or stolen goods) can be attracted to barter. Examples of red flags would be people who are selling items for significantly under market value, or people who have an unusually large amount of a particular product without cause.
Recently I posted on craigslist that I was looking for a local bakery that I would like to barter with. I was contacted by someone who said that they had access to thousands of dollars worth of gift cards at a local bakery. When I asked them if they were an owner they said “no” but said that they were “authorized” to have the cards. During the course of the next week or so, we traded multiple emails working out a deal, however I noticed that the person never gave their name and would not talk on the phone after multiple requests. When they did finally phone they missed me, wouldn’t leave a message and told my staff they they were calling from a friend’s cell phone. They called back later that day and would not tell me their name. At that point I told them I was not interested in a trade and called the manager at the bakery to give them a heads up that something suspicious was going on. Ultimately I suspect that it was actually the manager at the bakery who was trying to surreptitiously barter away the gift cards for personal gain but I have no proof of that.
Bottom line here folks: Be smart and watch for red flags; doubly so when you are dealing with someone you found on Craigslist. 🙂