Manufacturers & Distributors ARTICLE -
Trade you for my manufacturing
Bartering provides a welcome alternative in tight times
Target Audience: Manufacturing and Distribution Companies, Manufacturing IT Department Employees, M&D Industry, Manufacturing Accountants, IT Professionals
It may not be easy to borrow money in today’s economic climate, but you do have one thing in your favor — the products and services you sell. As banks become increasingly tight-fisted, more businesses are turning to bartering to recoup losses, reduce excess inventory and even come away with additional income.
In fact, according to the National Association of Trade Exchanges, about 400,000 U.S. companies barter each year. Manufacturers who haven’t taken the time to fully understand the modern bartering system could be missing out on business-saving transactions.
Bartering Basics and Trade Credits
When it comes to initiating the bartering process, you have two options. You can barter directly with another business if what you have to offer each other seems mutually beneficial. One caveat: This limits the variety of goods and services you can receive in a transaction, and a certain amount of trust is required because there is no third party involved to ensure the timely delivery of goods or services from either side.
Alternatively, you can turn to an exchange company that will consult with you to determine your company’s needs and then do the legwork, giving you access to thousands of companies in a variety of industries and markets.
The qualifications for what constitutes bartering have broadened to include several mutually beneficial options, above and beyond simply trading goods or services. With the help of an exchange company, for example, you can turn liquid assets into trade credits by selling excess products to another market. You can use your trade credits, along with cash, to purchase business needs, such as vital replacement parts for aging machines.
By turning excess inventory into trade credits and using those credits to pay for machine parts, you can keep your operation running at full speed without putting forth cash you can’t afford to spend. Plus, with the help of the exchange company, the manufacturer whose parts you’ve received can put its credits toward other business expenses, such as hotel accommodations for a trade show.
With the flexibility trade credits provide, the options for what your company can acquire in exchange for its goods or services are extensive. Beyond replacement parts, manufacturers also typically barter for company health care benefits.
Don’t Forget To Pay the Tax
It’s important to keep in mind that, even though bartering can save you money on various expenses, taxes are still as certain as ever. Barter deals are treated just like cash transactions, so you’ll have to report whatever you trade as income and the goods or services you acquire as expenses.
The IRS views barter credits as real dollars, so you won’t receive any additional tax benefits or penalties if you use a barter exchange. However, you may be able to contribute unused barter credits to a charity at the end of the fiscal year, which would allow for a tax deduction.
Keep Your Options Open
As long as you have products or services to offer, bartering can be an effective option to keep your manufacturing company up when the economy is down. Ultimately, you’ll gain more control over your cash flow without having to sacrifice the necessities of running your business.
Find out how our M&D accountants can add value to your business. Email us or call us at 1 (888) 875-9770.
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