Barter for services sounds cool, doesn’t it? It means that you can trade your product or service to obtain another’s product or service without exchanging money. Value for service. Easy, right?
It can be. It can actually help an entrepreneur who is short on cash obtain services they need but may not otherwise be able to afford.
Here are some examples of small business owners who claim to have successfully bartered their services:
- An artist who has no health insurance trades his paintings with his doctor, an art aficionado.
- A small publisher who trades advertising space in exchange for his rent.
- A small consulting company that offers her coaching services in exchange for office cleaning.
I have some questions, however. How does each party value their services? What happens if one party is not pleased with the product or service, or feels they were not given enough value with respect to the value they received? What if one party does not perform, for example if the cleaning company takes consulting services but fails to clean as promised?
Also, consider tax consequences of barter. IRS guidelines require the reporting of the fair market value of bartered products of services in the year were received.
If you are considering barter, or currently bartering your services, make certain that you put the agreement in writing. Make certain to outline the basis for the exchange, and how it is going to work. Also detail the consequences of non-performance. Barter is a twist on a credit transaction, and all credit transactions must be backed by a contract.
Proceed with caution. I see too many collection files that started up as a cool barter deal, and ended in a non-payment or dispute.