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Small Businesses Are Bartering. Because That's What It's Come To.
By Marc Tracy
Well here's one way for businesses to function in a recessionary economy whose credit markets have been especially hard-hit: turn to bartering. That is, for needed services, instead of offering super-valuable cash, offer services of your own.
The Journal's report on the phenomenon is typically splendid. They find a New York ad-man who is paying his bank for accounting services by giving them pointers on extending their brand, gratis. An Atlanta sandwich shop is making up a bill to a refrigeration company by paying a third of it and paying the rest in catered lunches.
It gets better: there are actual barter companies, which provide membership networks that enable disparate businesses to find good matches for barter arrangements. Apparently, over $16 billion in services was transferred in North America via such deals in last year alone--$11 billion of it having been done by small businesses.
It strikes us that bartering is a great way to stay afloat, if a poor way to grow. It is a famous tenet in economics that there are no free lunches, and that goes even when your lunches are free, or at least catered by the sandwich shop that owes you $1000.
The great advantage of borrowing is that you are essentially reducing your debt, because the time, energy, and expertise that makes up your compensating services are not liquid in the way that an asset is (or that cash is, of course). And what this means is that $1000 in free lunches really only costs that sandwich shop a fraction of a that, since that $1000 includes money normally set aside to make up a profit margin. Thus is a $1000 debt paid back with something more like $600 plus your services.
That's a great strategy for when you're strapped for cash. But it's poor long-term planning. Services are valuable, and the energy that goes in to services used to pay back debts are an opportunity cost when compared to putting the service toward selling sandwiches. Which is why bartering is a novel idea for satisfying tricky debts during rough patches, but is not a sound long-term strategy.
Comments (1)February 17, 2009 5:05 PM
Comments (1)
If you think you are escaping taxes by bartering, think again, the Internal Revenue Service has already thought of that..... to learn more about the tax implications of bartering, access the IRS Web site http://www.irs.gov
Posted by Chris Marsh | February 18, 2009 11:31 AM
Posted on February 18, 2009 11:31