Is it good business to barter?

It's not fair to compare

Whether you call it a contra deal, a business exchange or a trade, bartering amongst soloists is common practice. But is it necessarily the best way to support one another?

It is tempting to exchange business services with other soloists. It seems logical to trade. It preserves cashflow and is a great way to get us all the lawyer/ accountant/public relations consultant we need to run our solo practices.

But is using a contra deal as a form of business exchange more trouble than it’s worth?

I think so.

From a distance, the main problem is that the various service providers in your network almost certainly use different methods to calculate their fees and this complicates the business exchange process. Some have an hourly fee, others charge all-up for ‘the job’.

But that’s nothing compared to having to tell your would-be accountant that he or she needs to work for three hours at their rate of $85 per hour as a trade for one hour of your time at $275 per hour.

And then there are products. Another complicating factor. If you seek to exchange your products for someone else’s services or your services for someone else’s products, should the product price be valued at retail or wholesale or cost? And what will be the wholesale cost of your service provision?

If you want to support the other soloists you know and use and recommend their products and services, do it.

Engage them commercially and hope they will support your business, too. Perhaps a ‘mate’s rate’ or a ‘network discount’ is appropriate, but in my opinion it is cash that fuels businesses, not a barter system.

Once you’ve been a paying customer of a fellow soloist, you are in a great position to enthusiastically recommend their service or product. You could use word of mouth or even offer a written testimonial. Not only is this great karma, it’s an ideal way to promote the solo sister or brotherhood you’re part of.

Check out this awesome article on written testimonials – Ed

In fact the results of a recent Flying Solo poll tell us a majority of referrals come from former clients, proving you are in the best position to spread the word when you have paid for a fellow soloist’s product or service with your own money…and been delighted.

Karen Morath of M Power consults, trains, speaks and coaches in public relations, personal effectiveness, life balance and all things empowering.

13 comments | Add your own 1 2 3 | Next» View all»

I absolutely agree with you - I do not do contra deals for the same reasons as outlined in your article. But, I do value services I purchase and pay them immediately and recommend the businesses to others. I likewise recommend people who use my services and who pay me immediately because we value each other's time. Good cash flow makes a business grow. Karen from Springwood NSW
I've found that if people haven't paid real money for your services, they'll never value them ! Grant Hyman from Sydney | Read my articles
I have traded with the LETs (Local Energy Trading system) now for 15 years and have found it works extremely well.
I trade in $/Sapphs mix where there are $ involved in materials and the Sapphs (our local currency) are the labour (time/energy).
Cash does not rule supreme, we just have to adjust our way of thinking.And it keeps little Johny GST out of the loop.
I value my Sapphs account balance as if it were $. There are huge advantages in LETS, like unlimited interest free credit, no tax or GST (as long as Johny doesnt find out, and then I am happy to pay him in Sapphs). The only obligation (the primary LETs rule) you have is a committment to pay off any debt over as long as you want.
LETs does rely on a great deal of trust & integrity from its members and in my 15 years I have never heard of anyone abusing the system. This may seem to be a rare thing today but the "handshake" still exists and still works.
I would be happy to discuss LETs with anyone who is genuinely interested.
THERE IS ANOTHER WAY.
Sustainability will be achieved by a cultural change, not by technology. Kym Mogridge from Tathra via BEGA NSW 2550
Thanks for this comprehensive commentary Kym. We'll get in touch with you over the next wee while with a view to learning more of your LETs system.
Who knows, this may lead to a very interesting follow-up article. Robert Gerrish from Flying Solo
This is from the ATO website www.ato.gov.au re bartering and barter exchanges.
GST is still applicable to all ltransactions.
Tax Invoices are still required for all transactions.
EXTRACT ...
For tax purposes, we consider one trade dollar (T$1) equal to one Australian dollar ($1), unless it can be shown that the T$1 is being traded consistently at a different value or the amounts paid or received for goods or services do not reflect the real commercial value of the goods or services. If the consideration attributed to the supply does not reflect the real commercial value of the supply, the credits attributed to the supply convert to the GST-inclusive market value of that supply.
Example
GST payable on a taxable supply between members of a trade exchange
Harvey and Tracey are registered for GST and are both members of the Better Bartering Exchange. Harvey is a bookkeeper and provides bookkeeping services to Tracey who operates a courier service. Harvey’s trading account is credited with 440 Better Bartering credits (BBs) for the supply of services to Tracey.
Under the rules of the exchange, one BB equals $1 and the commercial value of the services is $440. The price of the supply is 440 BBs. Before calculating the value of the supply, the 440 BBs are converted to their Australian dollar equivalent – $440. The value of the taxable supply that Harvey makes is $440 x 10/11, which is $400. The GST on the supply is therefore $40 (that is, 10% of $400).
Harvey will declare $400 as assessable income on his income tax return, and Tracey will claim $400 as a deduction on her tax return.

Karen from Springwood NSW
Well, I joined the Bartercard system last July and must say that it has worked for me quite well. The trick it seems is finding business's where one can spend their trade dollars. There is no benefit taxation wise to dealing with barter dollars but it does bring unexpected clients to your business and works well for the right type of business. Im quite happy to be a part of the system and will continue on with it while it works for us. Michael Morris from Victor Harbor SA

13 comments | Add your own 1 2 3 | Next» View all»

Add Your comments

Preview comment

Name

Website *

Town / city and country

Email (never sold, displayed or given away)

* This will link your name to your site. So please avoid self promotion elsewhere! We delete spam, disrespectful or off-topic comments.