It is often said that “money makes the world go ‘round.” This couldn’t be truer for entrepreneurs, who may find that money goes out the door at a more rapid pace than it enters the business.
Business owners often need to be entrepreneurial when it comes to operations, including finding ways to get creative with financing. While we always think of money as our only currency, many of us provide expertise, goods and services with substantial value that can be bartered to grow your business.
Done correctly, you can use barter-based partnerships (let’s call them “bartnerships”) to take care of some business needs while building great collaborative relationships in the process.
However, like anything else, where you fail to prepare, you prepare to fail. And, in the case of bartering, that means anything from incurring hefty legal costs to unexpected tax bills.
Here’s a roadmap to help you barter and partner better so that it adds to your business.
Vet potential partners
When you go to partner on a barter deal, you want to ensure that your “bartner” has a positive reputation and shares your base business values.
One way to do this is to approach associates in your network where you already have a positive relationship. You can also seek recommendations from trusted business associates and advisors. If you expect to barter regularly, consider joining a barter group that verifies or rates participants, or even a barter exchange that intervenes in negotiations.
Whether you know your bartner or not, do an online search and check reviews, their social media postings and Better Business Bureau complaints to see if there is any history that could create an issue for the relationship and your business’s reputation.
Establish a fair exchange
Even in barter arrangements, the dollar remains the core standard of value. Both parties need to set and agree to a firm dollar value for the goods and services they’re exchanging to create a benchmark of “fairness” for the transaction.
You want to make sure that the trade has as equal a value as possible. For example, if a web developer wants to barter for legal services, the parties may choose 12 months of website maintenance with a $2,400 value for the creation of three template contracts that also have a $2,400 value.
While you may want to get a great deal with a lopsided arrangement benefiting you, that often backfires. You don’t want the other party to do a lousy job or feel like they are being taken advantage of – that can impact the quality of the trade and the relationship. Going for a win-win arrangement is always the best for both parties in the long term.
Date before marriage
Successful marriages typically begin with a low-key first date before the parties move in together and ultimately tie their lives together. Keep your first barter with a new partner like a first date – small in scope and low-risk.
You need to evaluate how you work with a partner before entering into a business relationship. Even if both parties have good intentions going into the bartnership, like marriages, they don’t always work out as planned. Until it’s very clear you can work effectively with and trust this partner, keep it small. It’s much easier to take on a larger exchange or partnership once you have a few small successes behind you.
Put everything in writing
The word “barter” may sound casual, and while a handshake may technically be viewed as a legal contract, it’s tough to prove in a court of law. A barter agreement may be even more complex than a straight cash-based compensation arrangement, so you need to identify all aspects of your agreement in detail and put them on paper.
By doing this, you limit misunderstandings before, during and after the barter arrangement. Document every detail thoroughly, from what is to be delivered by which party at what quality level and in what time-frame, as well as any remedies if one party doesn’t follow through.
Also, if you create a product or service collaboratively (such as working together to create an email list), specify what happens at the end of your agreement. If the agreement stipulates that your barter partner takes full ownership at the end of the partnership and you can no longer use the email list after a defined period, perhaps you should agree to supply fewer names than your partner.
Know the finish line
Your agreement might last for a week, a month or longer, but it shouldn’t last forever. You absolutely need to set an end date for the arrangement. Even if you enter into an identical arrangement many times in the future, it’s best to create a new contract or at least put together an amendment or extension each time.
If your first agreement worked well, creating the next one will be a simple matter. But, if you discovered that some provisions didn’t work as expected, you now have the flexibility to tweak the next version.
Communicate early and often
Don’t wait until the final deadline to check in with your partner and find out how things are going or to let them know where you stand on your deliverables. Define key milestones with your partner and check in with each other to ensure you’re both on track and maintaining appropriate quality levels.
Naturally, when unexpected issues arise, don’t wait for a milestone date to speak up. A setback on one side can affect the other side. Plus, an informed partner may have a solution to fix the issue.
Talk taxes with your accountant
When you trade goods or services that have a cash value, the taxing authorities, of course, want their share. This means that you should discuss tax implications with your accountant before entering a barter agreement.
In the U.S., the IRS typically requires you to report barter arrangements on your tax forms. However, if you exchange like goods or services, you both gain and lose valuable assets, so you may not need to pay excessive – or any – additional taxes if you properly track both sides of equal-value exchanges. However, IRS valuation rules can be complex, so that’s why a chat with your accountant is advisable.
Using your expertise, goods or services as currency can be a big boost to your business, but plan well so you reap the full benefits and minimize the risks for your business.
About Carol Roth
Carol Roth is the creator of the Future File™ legacy planning system, “recovering” investment banker, billion-dollar dealmaker, investor, entrepreneur, national media personality and author of the New York Times bestselling book, The Entrepreneur Equation. She is a judge on the Mark Burnett-produced technology competition show, America’s Greatest Makers and TV host and contributor, including host of Microsoft’s Office Small Business Academy. She is also an advisor to companies ranging from startups to major multi-national corporations and has an action figure made in her own likeness.
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