Business 101: Negotiating a fair trade exchange – what businesses should know
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MAINTAINING a constant stream of cashflow is a common challenge that many businesses experience.
Strategic business partnerships involving a barter exchange (the direct exchange of goods and services for other goods or services) can, however, be a great alternative solution for preserving much-needed working capital.
If done correctly, a barter system can help less established businesses save their capital, while having access to some of the goods and services that are essential to their operations.
These types of exchange agreements can also form the foundation of valuable, long-term partnerships between growing companies. It’s worth exploring ways to best manage barter exchanges so that they can help sustain your business as it grows.
Tips for negotiating barter exchanges include:
Know your real costs
It’s important to understand exactly how much it costs you to deliver your product or service before you enter into a barter agreement. Take into consideration the full value of what you are offering versus what you are getting out, and ensure that it’s a fair trade. Your product or service is traded as a currency, but it’s only effective if it results in a cost saving.
Savvy bartering takes creativity and an open mind about what offering within the business could be a valuable currency to others. Start by getting a feel for what other businesses might be looking for and think outside the box regarding what trades would most benefit your business. For instance, you might not be able to afford employee benefits for your staff, but you could enter a trade for dental care. You could barter through a business exchange network, or a one-off deal.
Have a contract in place
It’s not uncommon for barter deals to be based on informal agreements. However, this is often the root of misunderstandings and can result in unequal value distribution. Contracts should clearly state what each party will give and receive, include the value of each product or service and stipulate the timeframe.
This should be drawn up by a lawyer.
Keep detailed records
Once an exchange has been secured, keep a detailed record of goods and services traded to ensure the agreement remains profitable. Potential tax implications are another good reason to ensure barter deals are reflected in company records. If bartering through a network, unclaimed trades can result in a tax credit. However, if you are yet to settle a trade when the financial year closes, you need to reflect this in your financials and may find yourself with a tax bill for the trade surplus, so make sure all trades are settled before the end of the financial year.
Trade what cannot be sold
The real value of bartering comes when using otherwise unused capacity – if you can’t sell your goods or services for cash, you can normally barter something to generate value for your business. Barter exchanges can offer operational, customer or staff benefits, as long as it adds value to your bottom line. Once again, this requires being flexible and thinking outside the box.
Effective barter agreements have the potential to generate value while preserving much-needed cash, move surplus stock and serve as a foundation for a long-standing strategic business partnership. It is, therefore, worth the time to explore potential agreements with like-minded businesses whenever the opportunity presents itself.
Ben Bierman is a managing director at Business Partners Limited
*The views expressed here are not necessarily those of IOL or of title sites