Long before money was invented, there was the barter system. In a barter system, people exchange goods, services, or both for other products and services instead of for money. Often overlooked in business, bartering can be practiced as an alternative source of financial funding needed to start a new venture or expand an existing small business. Entrepreneurs today can use this system when they are low on funds to keep their businesses moving forward while also receiving benefits from neighboring businesses.
The bartering system works best between local businesses, but there are also online bartering communities. These communities can be used to find other companies to bargain directly with, or they can be used to sell goods and services for "trade credits" or "bartering dollars" to use at a later time.
Take for example Regina Nicole Boutique (RNB) and their barter exchange with a local photographer and models. In dealing with the photographer, RNB exchanged a gift card worth $25 and a 40% onetime discount for professionally done photographs of local women in their products. Regina Nicole Boutique received photos to aid in their marketing campaign – a billboard in downtown Sylva and increased engagement on social media platforms: Instagram and Facebook. The photographer gained new clothes, increased exposure of their services on social media platforms, and more images to add to their portfolio. The models were given a free RNB t-shirt and a 40% one-time discount in exchange for them modeling RNB products.
Regina Nicole Boutique's bartering strategy not only aided in their marketing campaign, but the one-time discount has resulted in repeat customers from the photographer and the models.
All strategies have advantages and disadvantages, so what are they for the barter system?
Disadvantages of Bartering:
- No certification for legitimacy so one does not know the condition or performance of the goods or services
- Possibility for inaccurate valuing
- Possible devaluing of the brand and product if recipients resell what was exchanged
Advantages of Bartering:
- Creating partnerships and networking with other local businesses
- Ability to exchange outdated inventory and stock for greater value instead of lessening their cash value
- Marketing exposure
- Cash-free capital
In view of these advantages and disadvantages, entrepreneurs should barter with caution, but keep in mind that the odds of it being a net positive experience are high.
Although bartering is an excellent opportunity for funding, expanding, and networking for entrepreneurs, it is not for everyone. Please remember that there are other alternative sources of financial funding. As with any business decision, entrepreneurs need to do their research and know the real cost of their goods and services.
If using the bartering system, please visit irs.gov for information on tax reporting of barter transactions.
Regina Nicole Boutique is a brick-and-mortar store in Downtown Sylva, NC. Visit their website at www.shopreginanicole.com.
Intuit mint. Barter System History: The Past and Present, 2018. Retrieved from https://www.mint.com/barter-system-history-the-past-and-present.
Jensen, T. “Bartering to Fund your Business.” The Startup Garage, 24 Feb, 2012. Retrieved from https://thestartupgarage.com/bartering-fund-business-2/.
Medal, A. “Why Bartering Can Be Your Untapped Revenue Source.” Entrepreneur, 20 Oct, 2017. Retrieved from https://www.entrepreneur.com/article/303367.
Zwilling, M. “Top 10 Sources Of Funding For Start-ups.” Forbes, 12 Feb, 2010. Retrieved from https://www.forbes.com/2010/02/12/funding-for-startups-entrepreneurs-financezwilling.html#54706d38160f.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
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