Better business bartering

MAT-SU -- Bartering is not a form of negotiation! In essence, to barter is to buy or pay for goods or services with something other than money -- whether cash, coins or credit. It can also be defined as 'trading' for goods or services that you want.

Bartering has been around much longer than money as we use it today. It is estimated that as many as 60 percent of companies on the New York Stock Exchange include the concept of bartering as a standard business practice. In times of tight finances bartering is a method of survival when little or no cash is available.

In the simplest form of retail barter, a business trades a dollar's worth of merchandise or services to another business to get a dollar of 'credit.' This credit can then be used to purchase goods or services from the other business, or in the case of a barter system -- other businesses within the system. Keep in mind that for tax purposes, although no cash changes hands in a barter, the transaction is treated the same as a cash sale. The business must report the value of the item traded as income and deduct the bartered purchases as expenses.

Bartering can expand the client base of a business and provide crucial supplies or services while conserving cash. However, be careful. Bartering also means that the business is not taking in cash which can affect the bottom line. Anne Ramstetter Wenzel, a U.S. economist, offers five rules for bartering:

1. Only barter if the company has some down time or excess capacity to spare. If the business is operating at near full capacity when you agree to barter, you may have to turn away a paying customer.

2. Barter only for supplies or services that you need or value. Since you are giving from the company's resources, make sure that you receive something of value in return. Know what the 'credit' can buy.

3. Exchange equal value for equal value and get the other party to agree before you start bartering. Write out a contract that clearly states what goods or services will be bartered and determine value of each item.

4. Keep careful records. The Internal Revenue Service requires that you report the value of goods or services received in a barter transaction. Invoice bartering partners for the value of services provided, then 'deduct' the value of the goods or services received on the invoice until a zero balance is achieved.

5. Treat the bartering customer the same as a paying customer. Bartering is a great tool to highlight your business and its expertise.

Think of bartering as a way to boost your business and not as a way of cutting costs. Examine your financial statements and make sure that bartered sales have not infringed upon cash sales to such a degree that cash flow is hindered. Unfortunately, you can't barter with the IRS and many other bill collectors.