Bartering is certainly a thrifty way to snag the products and services your young business needs. But what if the product you bring to the table is wild Alaska salmon, halibut and lingcod? How do you find a web designer who's willing to take payment in fish?
This was the issue faced by Mack Chaffin, co-owner with his wife, Diane, of The Elfish Company, a fish distributor. Although he does a decent business selling fish through his website, at farmers markets and to a handful of restaurants and grocery stores, Chaffin wants to expand.
But marketing requires capital that the Dewey, Ariz.-based businessman doesn't have. So at the end of 2011, when he discovered The Barter Group, a trade exchange of 450 small businesses in Greater Phoenix, he leapt at the chance to join. We cast a line to Chaffin to find out more.
Related: Top Sources of Small-Business Financing in 2012
Why join a bartering organization?
Until now, the farmers market in Phoenix has been my primary source of revenue. I've been looking for ways to expand, to get the word out that we're here. But we don't have the kind of capital needed for advertising. Most of our capital has been used to purchase the freezers where we store our fish and other items to get the business established.
With the current economy, we can't exactly go to a bank for a loan. They're looking for somebody who's been in business a whole lot longer and has collateral. So when I learned about The Barter Group, it was perfect. You don't have to make a huge capital outlay every time you need services. You just swap something.
How does the group work?
When an individual wants to purchase some fish from us, what I get in return are "barter dollars," which are kept in my Barter Group "bank account." And then when I need to purchase a product or service, that credit will be there for me to use. It's much easier to do this than having to purchase the fish and still come up with other capital to pay a marketing company for their services.
What are the fees involved?
The Barter Group charges 6 percent cash on each transaction as well as a monthly maintenance fee of $10 in cash and $10 in trade. We were lucky enough to get a free membership last year due to a promotion going on when we joined.
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What services do you plan to barter for?
In 2012, we plan to spend $10,000 to $12,000 in barter dollars. We're hoping to do web design, branding, printing, promotional items like T-shirts and hats, print and radio advertising and strategic marketing, and to expand our social media reach.
It's almost tripling what our marketing budget was before. All you're spending is inventory. If we were to spend $12,000 on marketing, we'd be taking that in cash out of our pocket.
Why not just barter with other businesses on your own?
Going through The Barter Group is much easier than calling somebody out of the phone book and saying, "I need you to do this, and by the way, would you like to take some salmon as partial payment?" You don't know whether that would insult them, or they don't like fish, or they just don't want to barter.
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This article was originally published in the January 2012 print edition of Entrepreneur with the headline: Barter Up.
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Comments:
It is good to use barter but it is only effective when you have lack of financial force. Entrepreneur of a small firm can take advantage of this facility but large firms still have other options to take finance from other sources.
The IRS considers trade dollars the same as cash dollars. Members are issued a 1099-B for the total of sales for the year, just as if those sales had been for cash. Also, all purchases made with trade dollars that would be tax deductible if paid for with cash are also tax deductible when paid for with trade dollars.
Gordon, No, organized barter is not a way to avoid or evade taxes but a way to increase cash profits. Since 1984 organized barter networks have been required by the IRS to provide 1099B reporting just as banks and brokers do. For more information on this subject and the advantages of modern trade and barter, I suggest you go to; www.irta.com The International Reciprocal Trade Association represents this industry around the world. I invite you to join the estimated 250,000 businesses who profit from systematic barter. Michael Mercier President, IRTA
We use WNY Barter in Buffalo for all sorts of business and personal needs. I even got my tan on barter from the florida vacation
What about the IRS? Any information on how they would treat this? I mean both parties are getting away without paying taxes.
We are in two barter networks, and it is great. It really relieves some financial pressure if you work it.
In the early, salad days, a few of our team members used ATA (American Barter Association) in the Bay Area to a great extent. It was well organized and very beneficial.