I had lunch with a friend this week, and she told me about a barter exchange that her husband joined. The concept is pretty simple: you provide a service and earn barter credits, then you spend barter credits to purchase services from other businesses. And in a down economy, barter is appealing.
My biggest fear would be ending up with a bunch of barter credits that I can’t spend on anything that I need. However, the list of businesses that participate was so large (over 400 businesses), we could spend our credits on everyday things like restaurants, hotels, and satellite TV. It wasn’t just limited to services like plumbing and contractors that you might only need when something breaks.
Earning and spending through a barter exchange still has the same tax ramifications as traditional business models, but the idea is to generate more business for the member businesses. It seems like a great idea on the surface. I’m planning to look into it further to see if it’s something that would be beneficial for the new tax business to join.
If any of you have experiences with barter exchanges in your area, I’d love to hear about them! If you don’t have one in your area, it seems like a fun business for the owner to run (who takes a commission percentage of each barter), so maybe you just found yourself a new business idea!
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I haven’t joined one, but I’d love to read about other people’s experiences! I could babysit or pet sit…
Maybe I’m missing something. I thought that bartering was directly exchanging goods or services for other equivalent goods or services. Barter credits sound a lot like money, only with limited buying power.
It sounds like money to me too. I guess the appeal is that there are people out there who have barter money to spend… so why not let them spend it at my company?
It is like money – only you feel differently about this money. That’s really all that makes it different. It is money in a small group vs. money in a worldwide group.
Thanks for including me in your roundup. I am glad people are getting value from the 10 minute taxes article!
That sounds like a great idea. If only we could do that on a larger scale. It would be nice to be able to trade in any goods or services I can provide for some sort of credit which I could then trade for the goods or services of other people or collections of people…
What if the services you provide is higher quality than what the other businesses provide?
This is pseudo-communism. The teacher would teach the doctor’s kids and the doctor would allow the teacher to get checked up for free.
You get to charge your regular rates, so there’s still an element of the free market.
For example, maybe the doctor earns $200 in barter credits for giving a checkup. But he only has to pay $20 in barter credits for a tutoring lesson for his child.
You are right, Madison. Running a barter exchange is a great business. I’ve been running one full-time in Phoenix for almost 7 years now. It is also a very inexpensive business to get started. I also created software for the barter industry that allows members of one barter exchange to trade seamlessly with members of any other exchange using the software.
@Edwin: My thoughts exactly. You’d find yourself constantly refining the bartering system and adding businesss until you eventually end up with an exact mirror of our existing currency system. That is, your barter system gets better the more neutral the credits get (you can spend them anywhere); therefore currency is the barter system perfected.
I can’t think of many benefits to the barter system other than a) building trusting relationships with other local businesses (it’s a good way to freeze out the national businesses who wouldn’t cooperate, if that’s a goal), and b) flying under the radar of the IRS for small jobs–and if it were tracked with credits, that would be impossible to do. Anyone see any other benefits? @Barry–I’d be particularly interested to know your thoughts on the benefits.
Jason- to reply directly to your 2 points:
a) Without a doubt, build relationships with other local businesses is a huge bonus. Here in Phoenix, and I’m sure most other cities, there is a very tight business community and word travels fast.
b) There is no flying under the radar when working with a barter exchange. We are required by law to report all sales via a 1099-B form.
Other benefits include bringing new business that you would not otherwise have had; Conserving cash for things like rent, utilities, etc. for places that will not/cannot barter; Utilizing barter to purchase thing you would not otherwise have cash for (show me a small business owner that regularly goes on vacation).
Using barter exchange management software such as mine (Barter21 – shameless plug), members of local barter exchanges can also trade with members of other local barter exchanges across the country and around the world as a seamless transaction.
I am a strong supporter of shopping at local businesses instead of chains or franchises. If I need to meet someone for a cup of coffee, Starbucks is not even an option. I don’t remember the last time I was in a chain restaurant. Local barter exchanges exist on the business of local businesses. It is just way of keeping the money in your community.
We were members of an exchange before deciding to start one on our own. We love running our exchange and helping people.
And yes, if there isn’t a barter exchange in your area, start one. Whether it is a small group of business owners or you create a complete business out of starting your own exchange (lot’s of great resources, my company included) you will be doing much to take the future of micro-businesses into your own hands.