When cash is short, smart people and smart businesses often turn to barter. Naturally, in today’s dire economy barter is on the rise. Big time.
Business-to-Business Barter
Last November, BusinessWeek published a story on barter that gives some great examples. Here’s one:
Shawn Cressman, president of Cressman’s Lawn & Tree Care, the business his father started 33 years ago in Bethlehem, Pa., sees bartering as a significant way to reduce cash outflow. Last fall he joined the Stroudsburg (Pa.) Merchants Barter Exchange, an association that coordinates and organizes trading of products and services among its more than 10,000 business members. In September, when the transmission blew on one of the firm’s trucks, Cressman turned to the exchange and bartered for a replacement. “That would have cost between $1,500 and $2,000, and that was not in my budget,” he says. He also bartered to acquire a $4,000 piece of stone-crushing equipment. “I probably wouldn’t have bought one this year,” he says. “It would have had too much of an impact on my cash flow.” But as a result of strategic bartering, Cressman estimates he has been able to save about $6,000 total so far this year.
According to the most recent numbers compiled by the National Association of Trade Exchanges (NATE) in Mentor, Ohio, some 400 barter exchanges in the U.S. and Canada generate transactions worth $4 billion a year.
Consumer-to-Consumer Barter
According to US News and World Report, Craigslist advertisements for people looking to swap goods and services have doubled over the last year, and sites focused on bartering are seeing a surge in traffic. One is U-Exchange, where members trade just about anything from cars for home renovations to restaurant gift certificates for electrician services. U-Exchange co-founder John Moore says traffic at the beginning of 2009 was up over 100 percent compared with a year earlier. Because of the economy, he says, “people are willing to dip their toes in the water and give [barter] a try.”
US News and World Report also gives a few important pointers.
- 1. Pick the right place to barter.
2. Be specific.
3. Be wary of scams.
4. Don’t forget about the IRS.
5. Know the limitations.
An example of a taxable barter is “a plumber doing repair work for a dentist in exchange for dental services.” Both the plumber and the dentist would need to report those services as income.