Bonitamedia’s Weblog

Creating a lasting impression for small business

Is bartering becoming more prevelant in today’s business environment?

It seems like a simple questions, with an even simpler answer. Of course more businesses are bartering. With cash-flow an inherent issue in most small businesses, and the need for goods and services unchanged, many are looking to bartering as a way to overcome that obstacle.

Media companies have bartered for years. I see it typically with restaurants trading food credit out for advertising. Makes sense – the hard cost for the food is significantly less than cost of advertising. In many cases, the restaurants receive 5-10 times the “value” in advertising in relation to the cost of the food. It also helps to generate new and repeat business for the owner and can help keep the waitstaff busy during slower months. But what disadvantages are there?

A lot has been written on this topic. The first that comes to mind is disproportionate value. I was working with a large fitness facility to promote the opening of a new location. They were looking to do 100% trade. In this case, it didn’t make much sense for me to do. May services run anywhere from $1000/month and up. They were looking to give me trade in memberships for as long as the signs were being displayed. At <$50/month for a membership I would be getting the raw end of that deal. In another case, a restaurant approached me about a campaign and asked if they could do a partial trade. This intrigued me – great restaurant with a superb reputation – exactly the client I was looking for!. They are uniquley positioned in our market to be able to provide elegant dining and seminar space. After much thought, we decided the best trade would be to hold marketing seminars in order to help promote their facility to the business community.

This is one example of both sides truly getting more value than is stated on paper. This should be the goal in any business transaction – make the experience phenominal – beyond a win-win for all involved. When bartering for goods and services, be sure to structure your deal so both parties truly can get more out of the deal than expected.

What pitfalls are there? If done correctly, there are only a few. (Now, before I go any further, I am not an attorney, nor am I an accountant. If you have questions, please ask your own counsel how the situation applies to you.) First, be sure to document with a contract and add the income and expense to your P+L. This will show, in theory, a wash in income, creating no taxable situation for your business. The big problem comes in when you barter business-for-personal. For example, you have a roofer come and fix a leak at your office and in turn the roofer receives something not related to his business (golf clubs for instance). This is a small example, but trading for personal items is frowned upon by the IRS. Be careful before you do anything to that affect.

I would love to hear your thoughts and some of the business trades you have seen work or fail.

J

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November 17, 2008 - Posted by | Business tips, Marketing in SWFL, SWFL Hodge Podge | , , , ,

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