Even for those businesses receiving funding relief from the government, most realize they need to do more to make it through the next few months as consumers come out of lockdown and supply chains try to make up for months of disruption.
One way small businesses can get creative is with cost-saving strategies. Partnering with other small businesses for cost-sharing is one way to save money while the world gets back on its economic feet.
What is Cost-Sharing?
https://www.inc.com/encyclopedia/cost-sharing.htmlCost-sharing is “a process wherein two or more entities work together to secure savings that one alone would be unable to obtain,” according to the Inc.com Encyclopedia. For most small business owners, health insurance is probably the most familiar example of cost-sharing—micro-businesses with one or two employees can better afford health insurance by joining a group plan comprised of many small businesses.
But there are other cost-sharing partnership possibilities to help small business owners save on operational costs. Here are a few ideas:
· Access to technology: With more business owners and employees working from home, you may find other businesses looking for access to your business’s high-speed internet, computers or even your office’s copiers. By offering your business equipment to others in need you may be able to barter other services or charge a small fee to help defer the costs of your Wi-Fi and other utilities.
· Marketing: Finding and sustaining new customers might seem like an unsurmountable feat during these crazy times, but by reaching out to fellow owners in the same boat you may find the process not as difficult. Cost-sharing on flyers, direct marketing brochures, social media campaigns and more could open a new target market lasting well beyond the pandemic period.
· Supplies: Many business owners are struggling to find new suppliers. By cost-sharing you and your partner businesses can save by ordering discounted bulk orders while also discovering new supply chain sources in your local community.
· Distribution: There are several ways to join forces to get your products in the hands of customers. And while the arrangement may only be temporary, once you set up the partnership, you might find it works for you on a more permanent basis. Food businesses, for instance, are finding it cheaper to sign up with delivery services like Postmates, Grubhub, Uber Eats and DoorDash rather than hiring extra delivery help. You can also “cost-share” with customers by making more of your business self-serve and DIY. Salons, for example, can package to-go hair treatments instead of doing the service themselves.
Finding a Cost-Sharing Partner
In times of crisis people often step away from being competitive and embrace the concept of “coopetition”— cooperating with your competitors. It shouldn’t be hard to find other businesses to start a cost-sharing partnership with. Call or email your city’s business development office, post a message on your website or social media platforms or ask your current suppliers for partner recommendations.
The key is to make sure the agreement is clearly defined, meaning the terms are detailed and there is an end date to the agreement. Like any contract, everyone’s obligations and responsibilities should be spelled out and as well as courses of action should the partnership need dissolving. Ask your attorney to look over the agreement in case there are scenarios or events you haven’t covered.
Cost-Sharing and the IRS
It’s a good idea to also have your accountant look over your cost-sharing agreement to see if the IRS would consider the partnership a bartering arrangement.
The bartering the IRS cares about is for the exchange of goods or services in the commercial sector. If you use a bartering exchange, the exchange is required to report the transaction and can guide you through the correct reporting process. If you set up the bartering transaction yourself, you must include the transaction as gross income. You can find more information on the IRS website.
Recommended reading: The Small Business Delivery Options to Tap During Coronavirus Stay at Home Rules