Episode 36: The Right and Wrong Way to Barter in Business

  📍 Welcome to CreativeMind Smart Money, the podcast where creativity and business smarts collide. I’m your host, Samantha Eck, bookkeeper, business coach, and your go to guide for building the creative business of your dreams. Whether it’s mastering your money, streamlining your systems, or growing your business, I’m here to share insights that empower you to thrive.

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 You’re listening to the Creative Minds Smart Money Podcast and today’s episode is all about bartering and if bartering is right for you and your business. So we want to really analyze when bartering might make sense for your business and there’s a few cases but the biggest one is if you just don’t have the cash flow yet to get a certain service that you are looking at.

We want to emphasize that bartering is a tool, not a necessity, and it shouldn’t be used all the time. It’s okay to say no if it doesn’t serve you and your business. So let’s dive right in and talk all about bartering. So what is bartering? Bartering is trading goods or services instead of money.

So instead of receiving a certain amount every month, you and another service provider or you and another business owner will trade. What this looks like is if you’re a social media manager and you needed a bookkeeping services, essentially what would happen is we would barter services. So you are offering me your 500 a month package.

The equivalent of that would be my 500 a month package. So instead of exchanging money, we’re just going to exchange services. I will do bookkeeping and you will do social media management for me. And there just won’t be any money exchanging hands. Another example of that could be if you are a boutique owner, maybe you’re a clothing shop owner, maybe you offer a website designer the equivalent of their website services in clothing at your boutique.

That could be a really good example of goods instead of money. Now, it is an option generally during slower seasons or when cash flow is tight. Those are the two biggest options and reasons for bartering. Bartering should not be used as often. It’s not a negative, but it’s definitely something that if you use it too often it can get out of hand and tracking becomes a nightmare.

So you want to use bartering wisely and you want to make sure to approach it with a healthy mindset. You want to Not just walk up to someone and tell them, Hey, you know, can we barter services? Because not everybody is going to be down to barter services. So you want to make sure that you’re doing it with very clear intentions.

So here’s a list of questions to ask yourself before you even consider bartering or offering your services to someone else. in exchange. You want to ask yourself if this agreement can truly benefit both of you equally.

So Are the services that are going to be exchanged between the two of you truly going to benefit both you and the person you’re exchanging them to? And does the other party value my service or product as much as I value theirs? So if I’m a bookkeeper, and let’s just say you’re a website designer, and you say that my bookkeeping services are just not as valuable as someone having a website like the equivalent of your packages just don’t match up and you’re saying this is not Equivalent.

That’s a question you want to ask yourself because you want to know and then you want to understand if you’re prepared to clearly define expectations and boundaries. So three questions we want to ask ourselves when thinking about bartering.

Can this arrangement truly benefit both parties equally? Does the other party value my service or product as much as I value theirs? And am I prepared to clearly define expectations and boundaries? If the trade feels uneven at any point in time, it’s totally okay to walk away. You don’t have to follow through on a barter.

And of course, bartering services is very similar to what we do with contracts. But let’s get into some common pitfalls and how to avoid them. Based on those questions, we already know that one of them is going to be unequal exchanges. So one party undervalues the other services.

Bartering is such a difficult topic because it’s touchy. It can offend a lot of people depending on the people you ask. So I always suggest to anybody who’s interested in bartering to really only do it with people, you know, and people that you can confidently say won’t be offended by it. The next pitfall is undefined agreements.

With miscommunication about the scope of work or deadlines, it can really cause a lot of issues. The clear thing here is to understand that bartering acts as if you had any other client. There’s no need to treat them differently. Make sure they sign your contract. Make sure they go through your onboarding process.

Make sure they answer all your questions. It is the same thing. The only difference is that Instead of exchanging money, you’re going to be exchanging services. And then of course, bartering shouldn’t replace paying clients or create unhealthy cycles. You want to remember that with bartering, you’re not earning money.

So there’s no money actually coming into your bank account. There is a time and a place for bartering and you should not have to rely on it consistently to get services. I’m sure you as a service provider value being paid and being able to provide for your family. So imagine how it feels if You’re bartering your services to everyone else.

They also need to provide for their family and be able to pay for things. So bartering needs to be done in a manner that is kind and respectful to both parties. Now if you’re really serious about bartering and you’re considering doing it, there’s a few things that we need to really just Outline.

First of all, you want to clearly outline your terms. What will you exchange and what’s the timeline? So like I mentioned, you want to walk through and through the same process of your contract. They want to understand the contract. They want to understand what they’re getting out of it and what the timeline is.

And then you want to keep track of the monetary value of the services exchanged for bookkeeping and tax purposes. This is so important. I see so many business owners do bartering services. In fact, as an example, one of my clients barters their vehicle repair services in exchange for pest control for their building.

They never keep track of it. I have to dog them consistently to get The value of what the service was. You need to keep track of it. And it’s very important because at the end of the year, one, the service that you are exchanging. So, for example, if I’m giving bookkeeping services as a bartering service, that is still considered income.

So the money that I am Earning from the exchange of services is still considered income. Then the service that I’m receiving is still considered an expense. So it does zero out. However, you need to send the person that you’re exchanging with a 1099 B because It’s a report of income to the IRS saying that we’ve traded fair value services.

And it’s very important because if they were ever to audit and find out that you aren’t recording this properly, it can be a huge issue for them. And they’ll look at every single tiny crevice of your business. So it’s better to have bartering recorded properly than not. And it’s so important because I’ve seen, again, I’ve seen it time and time again, where people just don’t want to track it.

They don’t think about it. They’re like, Oh, I’ll just, I can just trade services with someone. Why does it matter? Because, again, It’s considered income and the money that goes out is considered an expense. So, yes, it does balance out, but you still need to have it recorded properly. And then, of course, the third thing is the written agreement.

So, yes, you have the clearly outlined terms, but also have a written agreement. Even for friends or family, formalize the deal because it It helps to avoid misunderstanding. So for example, if you’re a social media provider and your dad is a business owner and you want to provide social media services for him, even if he’s a family member, you still want to treat him like any other client.

Have him go through the contract, have him go through the onboarding process because you want to make sure that all of that is laid out properly. Now, of course, again, like I said, bartering should not be something to be relied on at all times. There are alternatives. And of course, you know, I’m gonna mention that financial buffer test for slow periods.

If you have a financial buffer, you’re less likely to need to barter for services, because a lot of times what will happen is You know, people tend to have a slower period and then they pick up again and then it’s, they don’t need the bartered service anymore. So instead, create that financial buffer to be able to handle those slower periods.

And then explore creative ways to increase your cash flow so you can afford service providers you want to work with, whether that’s pre sales, limited time offers, maybe you do a couple launches, whatever it is, make sure you’re doing it. with intentionality and make sure you’re making sure it’s fair to both sides.

📍 Bartering can be a helpful tool but it’s not a requirement and it’s really important to be intentional, fair, and wise when you’re bartering with other business owners because it can be a really touchy subject. I invite you as my listeners to share your thoughts or experiences with bartering either by reaching out to my email samanthafirestormfinance. com or leaving a comment on Spotify. If you found this episode helpful, please leave a review and share it with a friend so that we can get more listeners listening to these episodes every single week and I can continue to provide you with valuable content like this.

As always, I hope you have a wonderful rest of your week and we’ll see you next week for another episode of Creative Minds Smart Money. Farewell, fellow travelers.