Barter Part 2
What if there was something you could barter that was so valuable, so desirable, just about every kind of business would gladly trade with you? There is, it’s called advertising. Advertising is the life blood of every business. Whether you own a small deli and depend on word-of-mouth advertising or you are a giant corporation like Coca Cola or General Motors with multi-million dollar budgets, you must advertise.
Many, if not most, radio stations, TV stations and magazines will barter advertising for goods and services. Often they have unsold air time or print space and will trade for things they need or can give away as prizes. They can also sell these things and convert them to cash.
Here is an example: A radio station that owns their building learns they have a plumbing problem that will cost several thousand dollars to fix. They could just hire a plumbing company and pay cash. Or, better yet, they could trade unsold air time and pay with advertising.
What about the plumber’s hard costs? He will have to furnish the pipes, concrete, machines, and pay his employees. What if he doesn’t have the cash on hand to cover these expenses? In that case the radio station could pay some cash up front to help cover the hard costs. Another option, the radio station could run the ads, for a while, before the plumber begins the work. With the new business the ads brought in the plumber would have the cash needed to cover the hard costs of the radio station job.
The radio station gets the plumbing issues fixed using only unsold air time. The plumbing company grows and becomes more profitable for the cost of one job which was paid for in advance. Both businesses benefit and are happy.
As an entrepreneur you can set yourself up as a broker. In the case above, you could have taken a 15% to 20% percent commission in the form of advertising time. The media usually pays the commission. You could then trade that time for something else or cash convert it by selling it for a little less than the retail price to some other business.
If you’re going to barter it’s useful to know some basic terms:
- Scrip…Scrip is the “deal” written out. It spells out the details of the agreement.
- Hard Dollars… is cash, credit cards, and checks. In other words, money backed by the government.
- Soft Dollars…This is the product or service you are trading. It’s another word for scrip. It’s your personal currency. Your promise to pay.
- Breakage…is the unused part of the scrip. Example, someone gives you a $20 dollar Starbucks gift card (scrip). You use it once and spend $19.75. You lose the card with 25 cents still on it. Starbucks calls that 25 cents breakage. It’s pure profit for them because they didn’t have to provide any product in return. For large corporations breakage can add up to millions of dollars a year.
- Cash Conversion…Let’s say you build websites and trade with a hairstylist for 30 style and color haircuts. She needs a website but you don’t really need 30 haircuts. You could sell the haircuts on Craig’s List for less than the retail price and still make a healthy profit. You simply converted the haircuts into cash.
As an RV Beachbum there are lots of things that you can barter here are just a few:
You can use barter/trade to raise funds for your favorite nonprofit organization. If you belong to a nonprofit like a church for example, you have probably been involved in fund raising. It might have been a bake sale, a car wash, or maybe a mini-golf tournament.
Along with the familiar fund raisers why not add barter trade? Instead of asking members to donate or spend their money you ask them to donate some of their time. Start with the professionals like CPAs, attorneys, doctors, personal trainers, auto mechanics, etc.
You can deposit these hours at a trade club. Your organization would now have access to the other members’ services. A church might be able to trade for a new roof or have a daycare center built or some other costly project. Another possibility is to auction off the donated time at the next scheduled event.
What about taxes? I’m not a tax expert so I can’t give specific tax advice. When it comes to taxes you should speak with a tax professional.
Generally speaking, I would tell a friend:
- Treat barter like cash. Trade dollars are the same as cash dollars as far as the IRS is concerned.
- Keep good records. The IRS taxes barter in hard dollars.
- There is no tax advantage or disadvantage to trading.
- When you trade the IRS sees it as income. The government taxes you on the market price of what was traded. In a trade, both parties have to report the market value of what they traded.
- When you join a trade club they will send you a 1099-B (Proceeds From Barter and Barter Exchange Transactions). Visit the IRS Barter Tax Center for more information.
Remember, it never occurs to most folks to trade. If you are going to trade with someone you will have ask them if they would consider it and then you will have to explain to them how they will benefit. Make sure you are talking to the person who has the authority to make a trade. If you want to trade with a small business find the owner and speak to him directly.
Be creative and have fun!
We would love to hear about your barter/trade experiences. Please use the form below to share your story with the rest of us bums.
What Have You Bartered?
Have you ever bartered for something while full-timing? Do you barter regularly? Did you get creative to solve a problem, save money, or create a win-win outcome? Please share your barter story with the rest of us bums.
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