Does Barter Work?

Yes it does and sometimes barter will produce a better outcome than what was originally attended.

The definition of barter is…

to trade by exchanging one commodity for another

In an economy like we have worldwide today barter should be something every business person needs to consider.

Naturally, cash is the name of the game and in barter that should be the end result of a barter deal.  However, barter generally starts off as an item or service that is exchanged for an item or service.

Service Barter Case Study:

Simple Barter:

Company A has a need for a program to generate revenue for their marketing business.  Company B does programming but needs more marketing.  In a barter Company A would provide Company B with a marketing package equivalent to the value of the programming Company B will provide Company A.  Both companies get what they want and the relevant services bartered will produce the revenue that each company is needing.

However, there is other form of barter that make bartering even more interesting.

Second Tier Bartering

If what Company A was offering was not of need for Company B’s business, the barter between these two companies could take another form.  In this case, Company B would take the Marketing Package Company A offers and sells it to Company C who is in need of the marketing services.  This brings in a third company into the barter program where cash or funds actually are produced from one or more of the barters.

Company B may up charge the Marketing package to Company C that Company A is providing.  This is called second tier Bartering. 

Another twist to bartering that brings in a forth or more companies into the deal would be..

Extended or Group Bartering

If Company A knows a Company D that is in need of the Services Company B provides and Company B knows a Company C that needs what either Company A of D provides then, though this seems rather complicated, brings in a forth company to complete the barter that provides all companies something they need in return for the service or item their company provides.

As you can see, the Barter System can work in times of need and not cash flow.  There is always a downside and to keep experiencing the downside of bartering, make sure from the beginning all is in writing and the lines of communication are open. 

Consult your attorney and your tax preparer to make sure all issues are explored before going into a barter agreement.  Doing this will make the barter as good as money.

Let me know how I can help.

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