Barter is a terrific way for small businesses to get hold of high-ticket goods and services they need but can’t really afford, especially during start-up. But there are plenty of traps waiting to be sprung in the world of barter.
Barter Trap #1: Not putting a very specific measurement, and cap, on the goods or services being bartered. Example: A new food-services entrepreneur offers his accountant free food in exchange for vital accounting services, and finds himself catering lavish events for the accountant’s corporate clients, without a dime of compensation. The quarterly filings the accountant provides in exchange don’t cover half the value of the catering.
Solution: Written agreements, including the requirement that if services aren’t of roughly similar monetary value after a certain period of time, the agreement ends.
Barter Trap #2: Glossing over a project’s failure to earn real money by pointing to the impressive cash-equivalents of barter deals. Example: a company Web site, intended to be an advertising-revenue generator, fails to earn real dollars, but attracts lots of advertising swaps – you run ads for other people’s Web sites, and they run ads for yours. But the value of the barter doesn’t reach beyond the Web site to the company’s other needs, so there’s no real value to it, at least not yet. A much more valuable barter arrangement would be to swap ad space on the Web site for needed business-productivity software, graphic design help on non-Web projects, or new-client leads. If you can’t generate the kind of barter that helps you keep money in your pocket that you would otherwise spend, then you’re not really benefiting from the deal.
Solution: Set up a barter accounting system that tracks two kinds of barter:
- added-value barter – things you are happy to have but that you weren’t planning to pay for;
- and saved-expense barter – things you budgeted real money for that came into your business via barter instead.
The first kind of barter is nice, but it simply is not sufficient to make a barter project a success. The second kind is where the money is – and that’s how you measure real barter success.
Content copyright Enterprise Interactive