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Whether you are starting or growing a small business bartering can aid in preserving cash to help get your venture launched or expand. Bartering is a must have success tactic for operating your small business.
Bartering can be defined as the exchange of goods or services for other goods or services. It is a transaction where no money changes hands. Bartering is estimated to exchange 8.25 billion a year in trade for 2004, according to the International Reciprocal Trade Association.
Advantages of Small Business Bartering
Free Excess Inventory or Capacity. If your business has built up idle capacity or has a large inventory, then bartering offers a means to move goods and improve your operations. Bartering has been a huge boost to companies during recessions to help move excess inventory and goods. If you have aging inventory or an outdated asset, then bartering can make sense for your business.
Help Cycles of Seasonality. Any business struggling with the ebb and flow of having a seasonal business can use barter exchange of goods and services during a slow period.
Preserve Capital. Many small businesses at certain periods during their business lifecycle will have periods of slower cash flow or limited capital. Start-ups and expansion companies with limited money for growth can use bartering as a strategic tool to acquire needed services.
Buy Media Bartering may be the simple reason your competitors are buying more advertising than you and outselling your small business. By turning your excess inventory or services into print, TV, or other forms of media, your company can maximize marketing and improve its bottom line.
5 Things You Need To Know About Business Barter
1. Money Pit: Beware of troubled companies on a quick downward spiral to bankruptcy. If your barter partner is in financial trouble and seeks bankruptcy, you may never receive your share of the barter agreement.
2. Time and Money Equivalent: Attach a time or money value to the barter. For a win-win situation to exist in a barter agreement both parties involved need to sit down and compare the exchange of goods and services in a quantitative fashion.
3. Tax Issues: Bartering does not offer a tax loophole to avoid taxation. According to the IRS tax website, “Income from bartering is taxable in the year in which you receive the goods or services. Generally, you report this income on Schedule C, Profit or Loss from Business Form 1040.”
4. Business Barter Relationship: Any barter relation should be examined against the value added to your small business. A barter of 200 lbs of animal feed is going to be useless to a management consulting firm; but 3 months of free magazine advertising can greatly improve cash flow and aid your profits. If your services are not in high demand by your barter target, consider a barter exchange group.
5. Barter Exchanges: Hundreds of barter exchange groups operate in America, offering an efficient channel to barter for small business. Barter exchanges allow companies to have access to more goods and services in a quicker fashion. For instance, a graphic design firm may exchange its services with a pet food company for trade credits. The pet food company in turn can exchange its trade credits for another member`s service, such as tax preparation.
Barter exchange groups are often profit driven associations, so compare groups to examine benefits, membership costs, and obtain member references. Make sure you complete due diligence and contact organizations like the Better Business Bureau.
Is bartering for your small business? As expressed in “What They Still Don’t Teach You at Harvard Business School,” business guru Mark H. McCormack says, “I am convinced that most companies don’t maximize their barter possibilities. Instead of aggressively reducing costs by trading their services with those of their suppliers, they seem content to pay top dollar for everything.”
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