I love to help people and I love a bargain, so bartering sounds like an ideal arrangement right? Well, it can be – at times. The IRS defines bartering as “exchanging goods and services without exchanging money.” There are things you need to consider when you engage in a business bartering arrangement. One of those things is the tax responsibility you hold.
According to the IRS.gov, bartering is taxable income. I know it doesn’t “feel” like income, but legally it is and must be reported as bartering income.
Does Bartering Really Reflect the Value of Your Business?
You may justify bartering by saying to yourself, “All I am losing is time.” True, but time is money, and you should never “lose” anything, especially time.
Brake down your projects to an hourly dollar value. Realistically evaluate what your time is worth, but what about your skills and education? Factor those in as well. Barter based on the market value of your service or product.
If you enter into a business bartering arrangement, at the very least, write a contract and spell out a list of the specifics as to what the exchange of goods and services are. Always consider what the dollar and project value amounts to on both ends. After all a contract is the meeting of the minds. Each party should sign it. Make sure the individual you enter into this agreement with understands your intent to report your side of the income to the IRS, as well as the expense side of the transaction. This should be clear before you enter into your bartering arrangement.
An never barter in exchange for the promise of referrals. That is just not realistic, and think about it, would you ever “buy referrals?” Some people may, and call it affiliate marketing. For me personally, I prefer people to refer my business based on their experience and because they recognize the value of what I have to offer.
Volunteer Because You Love the Cause, Not Because You Want the Business
Volunteering is a good way for people to see your work ethic, skills and abilities, but it is another form of bartering yourself broke IF you let it. You can sometimes come out of your week knowing you were very busy, but not have any income for what you did. Even though you are not getting another service or product in exchange for what you do as a volunteer, somewhere along the line someone may have given you the impression that volunteering is a good way to get business. If your heart is not in it, please do not do it. Why? Because you may eventually resent it, and your attitude will show it. Nothing is more obvious than sour grapes on someone’s face.
I had come to the realization that as much as I love various causes, I only have so much time in a day. The time I have designated for my business, needs to be spent growing my business and servicing my clients. If it didn’t take money to pay the rent and put food on the table, I would volunteer all the time because there are so many important groups out there that need help.
Discounting into Disaster
Another behavior I see desperate business start-ups practice is steep discounting. Okay, I can see discounting your first invoice by 10% maybe 15%. However, if you are going to give time away, give it away as an investment by creating an ebook, social media group involvement, or a freebie to post on your website. Try to be selective about discounting. At least when you write an ebook, free webinar or teleseminar you can reach an audience of people more than one. You can also write it off as an advertising expense.
Unless you are getting widgets at a huge profit margin, be careful with this behavior. Department stores can do it because they have a the margins they need to cover everything from the product base purchase price to employees to overhead. But if you are an independent business owner, be careful and reasonable.
Consult But Don’t Discount?
Yes, you may give one half hour to forty-five minutes of your time away to get acquainted with prospects, that’s what networking is all about. But ideally, create an atmosphere of people wanting to learn more. In other words, try to reach the most people with the little bit of time you have to spare.
You may discuss a prospective client’s dilemma at a networking meeting, but try not to let them take up the whole event. These events host a lot of people and you want to meet them and build as many solid relationships as possible. If someone wants your private time, invite them to visit your website and purchase an appointment that clearly states $xx/per hour or fraction thereof. Use a scheduling calendar that allows the client to purchase the time up front with their credit card. One I use is TimeTrade.
If It Doesn’t Grow Your Business, You Shouldn’t Invest Your Time In It
I received some excellent advice when I attended a seminar a year ago, I just wish I had put it into practice earlier. It was the wisest advice I had ever received, but I also paid for it through the seminar, so it wasn’t free. Here it is, “If it doesn’t grow your business, don’t invest your time in it.”
You may be thinking, “Volunteering does grow my business, I’ll get referrals.” You may or you may not; but I would venture to say the truth is, you may not, more than you may. Like I said, if you volunteer, do it because you love the cause, but please do not expect business from it.
I hate to sound like Scrooge, especially as the holiday’s approach. We all want to be the nice guy and we all want to be generous. I’m not saying, “Don’t do it at all!” I’m just saying, “Do it for the right reasons” and consider how much time you have to put into it. Between industry associations, religious affiliation, PTA and PTO, and local organizations, you can quickly realize how little time 24 hours in a day is.
Tell me your thoughts or experiences about bartering or volunteering below. You can speak the truth, but do so kindly.