Bartering is bad for business.
I will even go as far to say that bartering only works when your business has no money and then it becomes a self-fulfilling prophecy.
You exchange service for no money and thus the cycle of free or no money continues. I wrote about Why Free is Too Expensive years ago, it has been shared hundreds of times and has resonated with many people yet over and over again I see people try to circumvent paying for services when they are trying to grow their own business.
While this may work in a one-off situation, it is not a habit you want to employ in your business. I believe it can be extremely harmful to your business and that you might not even understand why.
1. Bartering won’t put any money in the bank.
When you barter there is no exchange of money. In business, cash is king. If you don’t have any cash in the bank, you are limited by what you can do with respect to the growth of your business. All decisions are governed in business by money.
2. Bartering won’t equate to any sales volume on the books.
When you barter there is no transaction on the books. Usually, because neither party has any money to exchange. This is harmful to your business because it devalues the sales you have done in your business and does not reflect the actual volume of work done.
3. Bartering won’t help you get a loan or a credit card for your business.
When you go to the bank and you want to get a credit card or a line of credit, the bank wants to see your business financials. If you barter, your financials will be skewed and your sales will be lower than they should be, and you will be cash poor. The bank is not going to give you money.
4. Bartering won’t help make your business scalable or “sale”able.
When you have a business that you want to scale or sell, you need cash flow to do so. If you barter you cannot measure the growth of your company accurately. Therefore you cannot value the business appropriately, making it much harder for you to put a valuation on your company and sell it. If you ever want to have a solid exit strategy you need to focus on the numbers in your business, and when you barter there are no numbers on the books.
5. Bartering doesn’t pay your OPEX or your team members.
You need cash to pay the bills, and money to pay your employees. When you barter you minimize your cash flow, and your cash position making it harder to transact what should be transacted in your business.
Final thought – really successful people don’t barter products and services. Successful business people look at the financial aspect of their business on a regular basis and make decisions based on what is right for the business, not what feels right for them in the moment.
Bartering happens from a place of scarcity. It rarely works and all it does it attract more people to you who don’t have money to pay.
I am all for reciprocity in business. I like to do business with my clients and when I do, it is all above board, and on the books. Remember, if you are just trading four quarters for a dollar, you don’t have a real business. You have a hobby.
Not comfortable with the numbers and still don’t get why managing the profits in your business is the first step to creating a solid business foundation? You may want to consider joining Profit Pods. A one-on-one coaching experience focusing on exactly what you need in your business in a group environment so that you get a community of support too.
Tell me, how do you handle it when someone asks you to barter your products or services?
9 thoughts on “Five Ways Bartering is Bleeding Your Business”
You’re so right Lisa about the challenges of tracking value and growing business from barter! Like you said though, there are those one-off situations where there may be more benefits than disadvantages. One way that I’ve created value out of bartering is by actually showing a bill for the bartered services.
Twenty years ago when I was working in radio, I worked for a fellow who was known at many southern-Ontario radio stations as “The King of Contra” (another term for barter). Our business provided outsourced commuter traffic reports to about 15 radio stations across southern Ontario, and the income was derived from the sponsorships that followed each report (“This commuter update brought to you by…”).
“Bill”, the owner of the outfit, chose to do as much of his business in “contra” as possible; we needed phones, so a lot of our reports were sponsored by Cantel (predecessor of Rogers Wireless) or Sprint Canada (for our long distance); any stations within listening distance of Niagara Falls heard a lot of reports sponsored by the mall where we had our office; listeners within range of Barrie, ON, would have noticed that every second report seemed to be sponsored by the local Mazda dealership (which explained how “Bill” was able to tool around in his little red MX-5 Miata!)
As Lisa noted in point #5, however, you can’t barter with your own team members, and within three months he was over $1,500 in hock to me. When I told him I was going to go to small claims court if he didn’t get it caught up …. he offered me a new computer and a set of snow tires!!! Problem: my landlord didn’t accept Michelins as currency …
My rule ever since then? If I can’t spend it somewhere else, then I don’t accept it as a form of payment.
That’s my motto too Tom, thanks for sharing!
I disagree mostly. If I didn’t barter for things I wouldn’t have as many things and or cash clients as do currently. Everything is written up and accounted for, and the barter is chosen very very wisely. I get many cash referrals from my barter clients. I am slowly easing up on barter as my need for services is winding down. I believe barter can be a great thing for business if entered into wisely.
That’s your prerogative and I respect it. Mostly because of the stories like Tom told and the experiences I have had, bartering just doesn’t work for me. I prefer to keep my business operations clean, cash on the books, and the tax man paid.
Being brought into this after the fact I will add a quick 2 cents, and my experience (being named a global leader in the industry, the #8 Entrepreneur in the US and one of the MOST ADMIRED BUSINESS LEADERS by the PHOENIX BUSINESS JOURNAL). Lisa it is obvious you have had a bad experience with Barter or maybe you did not do it through a trade organization. In fact the IRS sees cash and trade as completely equal and have for many years, since the Nixon administration. Trade actually started civilization. The true definition of currency is something you and I agree has value and we trade. We trade everyday we just do not always recognize it as such and the paper system (being far from a “Clean” system) is severally flawed and is also trade. Large companies like Staple, Boeing, Nike and ever Trump understand barter is a powerful business tool. If you want to learn TRADE THAT WORKS, let me know. Off my soap box now. 🙂 this is meant to inform not to attack, hopefully it reads that way.
Thanks Ana for your insight, I appreciate it and value it.
There are exceptions to everything, my post is really meant for those who are trading services, not valuing their contribution, and not building any equity in their business and then complaining about not having any money to pay the bills or invest in themselves. I appreciate you shedding light on how this can add value. My preference is still to have money in the bank, and to exchange services this way. Staples might barter at the corporate level in some way, sponsorship I would assume, but when I go in and need to buy office supplies, I need money to buy them.
Btw, I love seeing other opinions and did not see this as an attack. If we can help people do business better either way – it is all worth it.
I agree with YRosales. Bartering does have it’s place. Should you do it all the time? No, but when you enter a barter that is clearly spelled out (i.e., comes with a contract) the results are often mutually beneficial. When you are starting out bartering is a great way to build a referral network that will lead to future paying contracts. It’s been working well for my business and many others in a networking group I’m in called Crave Chicago. The trick is to have the terms agreed upon up front and treat it like a paying gig. You also have to be very selective as YRosales mentioned. Also, keep in mind that sometimes even paid work doesn’t actually get paid. There are plenty of horror stories on that front as well. While I may disagree with portions of this post, I do appreciate you taking the time to write it and for sharing your thoughts.