Bartering – a Great Way to Trade
Before you hit the back button thinking bartering went out of fashion when money came along. Think again. Bartering has not only thrived all this while, it has made a come back in the business world in a big way. If the International Reciprocal Trade Association is any indication, bartering today is a whopping six-billion-dollar business-to-business success story worldwide. And it is expected to grow by more than ten percent annually.
Bartering down the ages
Dictionary defines bartering as the ‘exchange of goods and services without monetary transaction’. It is simply an exchange of goods between two parties, who need something from each other. This mutual give and take has been practiced since antiquity, but has had its share of problems too. Picture this, a fishmonger wanting a new fishing net goes to a net maker with a handsome catch of fish. But the net maker isn’t interested in his fish. So, the fishmonger has either to remain without a net or make one on his own. And he can’t do either. So, he exchanges his fish with someone else for an item that the net maker would be interested in, and exchanges it to get his fishing net. This is what happened till money made its appearance.
But bartering continued to be practiced on a low key. Remember, you have done it too as kids, when you exchanged the center spreads of your favorite beauties for CDs of some really cool music. Well, this was bartering in its most basic form. Only recently has the world woken up to the immense business potential of this form of trade.
Resurgence of bartering
Bartering would have remained on the fringes had it not been for the invasion of the wonder chip called computer and the Internet. With its introduction, it became possible to barter in an easy and inexpensive way. This is because of computer’s ability of tracking barter transactions and maintaining huge inventories conveniently and economically.
To facilitate the burgeoning barter trade, many online facilities were introduced. The most important being the barter exchange, whose spread has fueled an explosive growth of bartering by creating markets for traders and bringing the interested parties together.
Benefits of bartering
But how is bartering better than normal business transactions? There are a number of benefits that has made bartering a force to reckon with in the business world. Let us see what they are:
Conserves cash: Cash, the lifeblood of business, is always in short supply, whether for a corporate giant or a small-scale industry. Since bartering generally doesn’t require financial transaction, such a deal becomes mutually advantageous, as neither party has to part with cash to obtain the desired goods or services.
Generates sales and profits: Not only does bartering conserve cash, it can actually generate sales and profits. This is because inventory turns over more quickly and service providers sell more of their time than they would otherwise, had they insisted on cash.
Creates new customers: Bartering brings together unlikely parties, which would never have met in the normal course of business. If satisfied with the deal, these parties can refer many more customers to each other, including the ones who pay cash. Even the original barter customer may start paying cash in future transactions.
Moves surplus stock: Barter moves surplus stock, which otherwise would have remained in the storehouse. It also saves money that would have been lost in advertising and weighty discounts.
Utilizes downtime and unused capacity: If you are not utilizing the full capacity of your plant or service all the year round and can handle new customers, then bartering may pave the way for new business opportunities.
Lowers prices: With bartering the goods and services procured always turn out to be cheaper than they would have been with cash, since there are no overheads. This can give you an edge over competitors.
Types of bartering
The most common type of bartering online is one-on-one or direct bartering that you can indulge in quite successfully. Its shortcoming is the difficulty in searching for the right deal. For example, you may sell soft toys and may want printing services, but you may be hard put to find a printer who may want soft toys in return. The other type of bartering is called the third party bartering. It uses some form of currency to allow more dynamic exchange between the parties. Businesses generally use both types for best results.
Modern-day bartering
If you do business on the Internet, then bartering may be a golden opportunity knocking at your door. For those serious on bartering, the first step is to enroll in a barter exchange. This exchange will readily help you find what you need by actively searching for the product or service you desire. The advantage of a barter exchange is that it networks with other exchanges across the country and even overseas, thereby extending your area of influence.
How to find barter deals online?
There are various ways to find barter deals online. They are:
Message boards: You can set up a barter message board or chat room on your website to get barter offers.
Notices: You can place notices on your website that you are willing to barter for goods and services.
Newsgroups: You can join newsgroups or e-mail discussion groups that are about bartering.
Online barter club: Joining an online barter club may help you meet other businesses that barter.
Search engines: By looking up the keywords like ‘barter’, ‘trade’, ‘swap’ and the like in search engines, you can get a wide choice of bartering portals to choose from.
Is bartering suited for your business?
Before you take another step forward, remember some businesses don’t lend themselves to bartering. Obviously barter won’t work for you if the product or service requires only cash. For example, car payments, mortgage payments or child’s education fee and the like. So, find out when bartering won’t work. Some points are given below:
Don’t bother about bartering if your profit margins are low. Your gross profit margin must be fifty percent or more, as payments to barter exchanges and others may make bartering uneconomical.
Don’t go in for bartering if you are operating at full capacity and have nothing to spare for your bartering customers.
Don’t barter if you are unable to generate sufficient trading volume for your product or service.
Steps to successful bartering
Before you launch yourself into bartering, it will be prudent to prepare well for it. First and foremost, analyze your products and services, and your buying and spending methods and see if they fit into the bartering scenario. The local barter exchange can provide you with a list of members along with products and services. This will facilitate you to find out what is available and who your potential customers might be.
You should be clear what all goods and services you are willing to barter. The best way is to make a list of what you need for your online business. Calculate the approximate monetary value of the goods or services you are seeking or trying to trade. This information will help you negotiate a successful barter deal.
At times you may find other online business houses reluctant to barter. You may have to educate them on the benefits of bartering, why it will be a win-win situation for both and how it will be a fair trade. The following tips may help in winning the trust of your potential bartering customers:
Only barter if the other party needs your product or service and vice versa.
Be specific on what you have to offer and what you want. This will save time and energy for both.
Be fair in sharing a fair value for the goods, including shipping.
Keep lines of communications open at all times with the person you are bartering.
Maintain all records of barter deals, much as you would for an actual sale.
Is bartering taxable?
Bartering is treated like any other business transaction by the tax authorities. It has no tax advantages or disadvantages. The barter exchange you have enrolled in, keeps track of what you buy and sell, and reports your trades to the IRS. Even sales taxes may apply on certain transactions.
The barter system offers a wonderful opportunity for you to gain what you want by offering what you can spare. Although bartering can’t rescue your failing business, it can certainly enhance your company’s market and profit potential. So, if you are looking for a great way to trade, try bartering. It may very well turn out to be a blessing in disguise.
