Bartered Bread

I figure that the tax department frowns on bartering where the unit of exchange is not the national currency ("dough"), and the transaction is not documented.

But what's a consultant to do when a fellow consultant offers to barter?

"Would we be able to barter this work ...?"; whatever their product or service, I am to work on their computer, and they will supply me with proof-reading, copy-writing, or a few graphic designs.

Surplus time

There's no doubt that at times this is tempting; I'm short of ready cash, too, but have lots of spare time.

Bartering in the old familiar sense was the exchange of surplus commodity, or at least, exchange of differently-valued commodities.

For solo entrepreneurs, that commodity is most likely to be time. I have an excess of time, as do you, and we will exchange so-many-hours of your time (and implicitly your expertise that comes with it), for so-many-hours of my time (and implicitly my expertise that comes with it).

Services, not Products

Note that bartering between us is most often going to be services.

Any tangible product that you provide - tea, candles, business cards - is provided by a cash outlay.

If you supply me with exotic tea at your cost, you had to spend the $100 cash anyway, why not use it to pay me?

If you supply me with five $20 coupons redeemable at Bruno's Grocery Stores, Why spend the cash at Bruno's when you could have paid me directly.

Even if you design the cards for free, you have to pay the $100 cash to get them printed.

Timely

Note too that bartering is only going to work - really work - if at the moment we shake hands on the deal you have a service I really want, can use, and can profit by AT THAT TIME. Anything else is a deferred payment plan.

Suppose you are a financial consultant, or a tax-planner, or a real-estate agent. I have no plans to buy a house, now or ever. That may change, but really, what's the point of holding a little IOU that offers $$$ off my next house purchase? I don't need a tax planner; I have a good accountant who is overkill for my little operation.

Barter might work if you provide a service (Web Site Makeover and Search Engine Optimization) that I could really use right now (My web sites are in disarray and I can't set aside the time).

Cash Value

If the service has a direct cash value, then we aren't really bartering, we are negotiating a payment plan.

If you offer to supply me with $100 worth of ground beef, I have to store the meat in my freezer and draw on it over a long period.

That doesn't help me pay the rent, phone bill, or bus fare, all of which require currency of the realm.

If your business centers on the supply of exotic tea, your offer to supply me with $100 of exotic tea at cost is equivalent to the $100 you spent to obtain the tea, so why not just pay me the $100 instead? And there's not much point in your paying off the $100 by taking me to the supermarket and helping me load up with $100 of groceries - why not just pay me the $100 in cash instead?

Negotiation

Otherwise it seems to me I'm better off issuing an invoice and waiting to be paid.

It being understood that this job I will do, but no other until that first invoice is paid. That is, I'm not in business as a bank.

So When Will Bartering Work?

I predict that your past history and future opportunities will demonstrate that bartering between solo entrepreneurs will work only when:

1) Each party has a surplus of time (commodity) and expertise they can make available at no dollar cost to themselves.

2) Each party has a service (not a product) of value to the other.

3) The service satisfies an immediate need for the other party.

4) The service or product is not a direct translation of cash value ("One hundred dollars worth of groceries").

5) The barter is not a thinly-disguised negotiation at deferred payment. ("I'll build your web site when you are ready").

If we assume that all solo entrepreneurs are short of cash, and assign a likelihood of 10% to each of the conditions above, then you have a 0.001% chance of negotiating a successful barter; that's one in a-hundred-thousand exchanges.

Hardly seems worth it, does it?

Sunday, February 07, 2010
Times Online: "For where money-based exchange is restricted, people must produce a wider range of goods, either for their own consumption or to increase the chance of having something they can swap for something they want. This is unfortunate, because the more things you do, the worse you will be at them."