Via IT World

Everyone’s budgets are finite, but our desires aren’t — especially when it comes to updating our business assets or getting expertise that can help a project succeed. Bartering — exchanging goods and services without an exchange of cash — is a good way to accomplish this… when done right. An accountant might do the tax-filing for a company that can redesign its website. Farmers can (and do) exchange tractors for cattle. A landscaping business can work out a maintenance services agreement with the lawyer who’ll do its incorporation papers.

When it works well, barter is fantastic. When it doesn’t… you’ll discover a whole new world of hurt.

Here are some of the pitfalls I’ve learned to look for. Perhaps you can learn from them, too.

Note: My examples are mainly from very small businesses, but then I’ve had a solo shop for a long time, and this post is from personal experience — some of which was painfully acquired. Applying these lessons is even more important when you’re on a larger team that has must-not-miss deadlines, because the “oops!” affects more than a few people.

Pay attention to your metrics.

The essence of a happy barter scheme is when both parties feel that they got a fair deal (or maybe just a little better than fair). One easy place to start is with an understanding of what it is you’re trading.

Pragmatically, I’ve found that things work best when both parties typically charge on the same measurement. If you charge hourly, it’s best when you can work with someone else who also charges hourly. The accountant might charge $150 per hour and the website designer $75 per hour; both can figure out how many hours they “owe” each other. That applies to bartering things, too: my old delivery truck for your extra inventory of quilting fabric.

While neither of us felt taken advantage of (we did deliver what we promised to one another, with no sniveling), I never felt really good about that deal. In retrospect, the real problem was that I “bought” something with barter that I’d never have bought with cash.

But if the other person typically works on a project basis and you charge hourly, figuring out what’s fair is more difficult. If the accountant charges $150 per hour, ordinarily, and the typical project cost for the website designer is $1,500, everything is hunky-dory, right up until it isn’t. Plenty of projects encounter scope creep and other reasons for delay or (ordinarily) cost extensions. In a cash transaction the designer would say, “It’ll cost you $500 more to add that feature,” but somehow it’s difficult to have that conversation in a barter transaction — particularly when the accountant already finished doing the taxes, and the website isn’t done.

Even worse: The balance can go out of whack if one party has to lay out cash and the other does not. I learned this lesson when I owned a retail store in a small town in Maine. I worked out a barter deal for three months of advertising in the regional newspaper in exchange for hardware that would have cost the newspaper editor $1,800 if he’d written a check. Except the transaction cost him a few quarter-page ads (which were not free, per se, but they didn’t cost anything out-of-pocket), and the hardware cost me $1,200 at wholesale.

While neither of us felt taken advantage of (we did deliver what we promised to one another, with no sniveling), I never felt really good about that deal. In retrospect, the real problem was that I “bought” something with barter that I’d never have bought with cash. I didn’t need three months of quarter-page ads; I’m quite sure that it didn’t generate me a single sale. Good branding, yes, but it cost me $1,200 in real money for something I didn’t need.

Yet when you do have a balance of the cost-of-the-sale, barter can work wonderfully. When I owned that retail store, I lived close to a craft school that drew artsy people from all across the country. Since I had a spare room, I worked out a barter deal with a local masseuse: Charlotte could use my space without charge to conveniently deliver massages. In exchange, we got four massages per month. Both Charlotte and I saved cash we didn’t have, and we had equal inconveniences (someone playing Enya in my basement at all hours, versus four hours of her time). Also, she gave great massages, and I like Enya’s music.

Make sure you’re on the same urgency scale.

My barter experiences have worked best when both parties expect deliverables on similar timeframes. For example, in most cases a shop owner bartering with someone to paint her window is happy to have the work done “sometime soon.” If the painter lollygags a bit it isn’t a problem… unless it seems that the promised task is being postponed so often that it should be called “ignored.”

But what happens when the time scales are different? If your project has a hard-stop “must be done by October 1″ deadline, your barter partner has to be onboard to deliver on that date. And given the relaxed nature of many barter deals, that can be a critical issue.

That timeline is also important when, by the nature of the tasks or services, one side delivers before the other is done. Let’s say a marketing coach agrees to train your fashion design company’s sales staff in exchange for some new clothes. Aside from needing to set expectations about the value of those clothes (should you say, “…in exchange for $500 worth according to the sales tag”? probably), one party is bound to deliver before the other. You don’t want the marketing coach to acquire the clothes until the training is delivered; the coach probably wants a clear sign-off before saying, “Okay, now show me those gorgeous new dresses.”

Choose the provider using the same criteria as if you were paying cash.

Don’t think of the barter as something you’re getting “free,” or you may pick the wrong person for the job. That means you need some awareness of the skill set you’re hiring. (Not “hiring” in quotes, since the only difference is in how the value is delivered.)

It’s especially important given that, in my experience, most barter deals are between people who already know one another and don’t want to create awkward situations. For example, if your brother-in-law says, “I’d be happy to build that new lunchroom for your office! Why should you give money to strangers when I’m a contractor?” In addition to whatever goods or services you offer in exchange, this might give him an opportunity to extend his skill set (e.g., he never built that kind of structure before) and thus have more bragging rights for his own marketing. Gosh, sounds like a great deal. And maybe it is.

Or maybe it isn’t. Because if you had asked several contractors for blind bids for that lunchroom construction project, you wouldn’t have hired him. He just doesn’t have the right background. Then, if the project stalls or fails or takes longer… now you have a dispute with your brother-in-law. That won’t end well. [Note: No actual brothers-in-law were harmed in this anecdote.]

One important component of working out a barter deal is to document everything — just as if you were going to pay cash for it. The difference is that instead of the specifications saying, “Company will pay contractor $X” the agreement says, “Company will provide OtherCompany X; OtherCompany will provide Company with Y.” Be far more explicit than you think you should. You’ll thank me later.

The casual handshake nature of most barters opens up the chance of every project-gone-bad story occurring in your business, such as finger-pointing about product specs, timetables, etc. As with any contract, if you can point to the agreement (which can be as simple as “here’s an email message to record what we agreed upon today; let me know if you see anything untoward”), both sides know what’s expected.

Because… what if you’re unhappy with the service? In a barter, what if you already consummated your part of the process (you did the tax return) but the other party was substandard (you hated the photographer’s images). If you were paying cash, you’d withhold payment or otherwise ask for the other party to fix the problem. With a barter… it’s sticky. It shouldn’t be, but it is. Particularly when the nature of the delivery is “…when the customer is happy.” (Imagine the storyline that begins, “Dammit those photos were just what he asked for!”)

Don’t let yourself think of it as unpaid work.

For some reason, when you have a barter agreement, it’s too easy to talk yourself into dropping the barter project when “paying work” comes along. It feels like volunteer contributions, except it’s not. Someone is counting on you.

One part of the “it isn’t free” mindset is in your own attitude. You can’t think that you’re giving away your work. You’re swapping one valuable thing for another: time, skills, goods. If you’re uncertain about the value of what you (literally!) bring to the table, you may have emotional difficulty with the process. (“Oh, you’re so good… and my skills aren’t nearly as valuable.”) That’s especially so when this is essentially a freelance gig for you, and you’re uncomfortably new to giving dollar estimates.

Your value is judged in the eyes of the person you’re trading with — not what it cost you. If your lawyer wants to give you $750 of incorporation-paper-filing in exchange for two hours of your (in your eyes) $50/hour time — is that fair? It might be, if she thinks she couldn’t or wouldn’t get your attention otherwise. For example, the boss might not let her spend money on that critical expense… but if it doesn’t appear on the books, everybody’s happy. Or someone might be thrilled to take your old, worn out laser printer off your hands in exchange for a brand new sewing machine; you’ll think, “The printer’s not worth that much!” but perhaps it is… to him.

The value proposition is also affected by emotional relationships. For instance, I offered to do something purely as a favor (e.g. I edited someone’s book chapter). When she offered to credit my account for my editing services I said no, because I had made the offer without thought of recompense. Accepting services would feel like it was… cheapening the gift? Some emotion like that.

Sometimes, it’s easier to sidestep a direct barter.

How do you work out a fair trade when your rates are very different? For instance, someone who charges $20 per hour but wants $750 of accounting services probably has to put in far more time than does the accountant. Sometimes you can manage this by talking things through — I think of my hair stylist working out “two haircuts” with his dentist-uncle for every tooth cleaning — but the rules need to be clear.

One option, rather than swapping time or products, is simply to give each other credit on account, at “retail prices.” That is, instead of specific services, consider “dollar vouchers” that the other person can trade in — rather like no-cash gift certificates. It’s much easier for someone to understand, “I spent two hours on this today at $75 per hour, so you have $150 of credit to spend at my store” and it can lead to fewer moments of crankiness.

I don’t want you to get the idea that barter is a bad idea for businesses. It’s worked very well for me over the years, and I’ve seen it work really well for others. Like any business process, though, it’s important to go into it with your eyes open.