Bartering is an age-old practice-This is an old practice that has been very common in small towns. File Size: 99.5MB
Bob Meyer – Fast Start Barter System
Just like you did it as a kid, your children will do it at school. Remember? If you didn’t like what you found in your lunch box – say, a liverwurst sandwich or a carrot – you traded it for something more appealing. Lucky you might walk away with cream-Ring Ding, or scarred rubber balls. Your children are smarter than you. They’re trading for more than their lunch, probably CD-ROMs, computer programs and the like; after all, it’s the value-Charged for performance-Mindful ‘90’s – just like the “real” The world of business is where bartering has become a big deal-Time. Bartering is a powerful business tool that has been adopted by thousands of businesses, from multi-national corporations to restaurants.-Billions-These corporations are dollar-based and trade their products and services for non-monetary goods. Even accountants do it. It is common for companies to trade what would otherwise be unutilized capacity for a commonly used item that would otherwise cost cash. James Dee Johnson & Co., an eight person accounting firm in Oklahoma City, barters to mow its lawn, advertise its services and provide dental care to its entire staff. “We’ve utilized bartering through the economic ups and downs since 1983,” said the firm’s owner, James Dee Johnson.
Bartering is an age-old practice-It is an old practice, which has been very common in small businesses. It has evolved into a complex undertaking supported by a vast network of third parties in recent years.-Party players. Perhaps entwined with the spirit trade-In the meantime, smart school children have seen many business owners and executives turn bartering into a multi-million dollar business.-Billions-It is the largest dollar industry in the world. To it champions, bartering has become a vitally important tool for maximizing a company’s return on its assets while building a network of potential cash customers as well as trading partners. Bartering’s role in the performance strategies of businesses may have grown in significance during the recession of the late ‘80s and early ‘90s, when more and more businesses sought ways other than direct sales to maintain production and the inflow of supplies. Companies are “starting to understand how they can use their products and services as a form of capital to buy things they need,” Bob MeyerEditor and publisher of Barter News is a quarterly trade magazine.
“We operate a 70% capacity, but with barter it’s 90%,” Shyka Cohen, the owner of SCE Realty, is a small New York-based real estate management company. In exchange for sending out its maintenance crews to paint and install sheet rock in other companies’ buildings, SCE earns trade dollars through Barter Advantage Inc., a local exchange for barter, is used to purchase business services, such as printing, and for employee benefits that it cannot otherwise afford, such as dental care and medical care.
UNLIMITED SELECTIONS
There are many connections that bartering can offer. To name just a sampling; Hotels unlock their rooms for advertising space in newspapers and magazines; printers roll their presses in exchange for legal services; manufacturers trade widgets for shares of another company’s stock; accountants offer tax preparation services for seats on airplanes; and employers of various kinds barter to provide incentives for employees, such as vacations at exotic resorts. “One of the nice things about bartering is that it enables you to be more generous with employees,” Ken Mara, President of Worldwide Security Salespeople, met with their fourth meeting.-quarter sales quotas, he noted, will receive Florida vacations, including airfare and luxury hotel accommodations – all paid for through bartering.
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There are no set rules for who can trade what. Much is done on an informal, bilateral basis, often depending on what’s available that willing traders need. Owen Freeman, an Anchorage-based sole practitioner CPA, expanded his business when he did payroll for a local restaurant. The monthly fee was $175. Freeman and his wife eat out at the restaurant regularly and then add the payroll costs to their monthly bills. It works well for everyone, according to the CPA. “I usually end up owing them money every month,” He said. “It’s good food.”
No one knows how much of direct bartering takes place in bilateral and unrecorded arrangements. However, there has been an increase in organized bartering through hundreds or third-party brokers.-In the United States, party exchanges have increased significantly to almost $9 billion.
According to NATE (National Association of Trade Exchanges), “retail” bartering – involving products and services traded through third-Party exchanges are mainly between small and mid-sized businesses.-Companies with annual sales below $10 million-It grew to $1.8billion in 1994, from $1.3billion in 1992. “Corporate” Bartering, generally defined as the trading in bulk inventories by companies having sales greater than $10,000,000, was worth $7 billion last fiscal year.
Although the volume of goods traded through corporate stock exchanges is much lower than that through retail, the retail barter format offers more opportunities for networking and greater transaction numbers. Corporate exchange members deal through the exchange operator and may not know the names of other members. However, the typical retail barter exchange provides direct connections to hundreds of members. Members can interact with retail exchanges and connect with up to 250,000 companies nationwide. “The biggest advantage (retail) barter offers is getting new business,” Tom McDowell, the executive director of National Association of Trade Exchanges, said this. Trading partners can often form a deeper relationship with one another after they start bartering through a trade platform. This may include referrals to one another for cash business. “When someone joins an exchange, they’re exposed to hundreds of thousands of potential clients.”
This industry is poised to experience a tremendous growth rate. The Internet and other innovative software will likely enhance the interaction between exchanges and clients in the near future.
Bartering has been recognized as a reliable way to do business. Third, although it still faces its fair share of critics.-Party bartering on reputable exchanges can be a good way to keep everything in line with government tax laws and maintain control.“There were some shoddy barter exchanges in the past, but most of those have been weeded out,” said Kevin Andersen, a partner of the Salt Lake City accounting firm Andersen Andersen & Strong, which audits the books of a local trade exchange. “Now bartering is a credible industry.”In fact, the federal government gave the barter sector a significant boost in credibility with the Tax Equity and Fiscal Responsibility Act of 1992. This act includes a provision that allows barter exchanges to be recognized as third parties.-party record keepers for financial information, similar to banks or stock brokers. “It made our industry go from an underground economy to a legal form of business,” Lois Dale, president Barter Advantage Inc. New York “Members are not fearful of doing anything wrong.” Added Meyer, “Essentially, the barter industry has become an agent for the IRS.”
Third-party retail exchanges operate in a fiduciary role as a conduit between the exchange’s trading members, providing them with a form of currency, or “trade dollars,” Members can use their credits as cash to purchase any other products or services from other members. The number of trade dollars a member receives is based on the value of the products or services it’s offering to trade; the value is determined by the members who are the buyer and seller. Since trade dollars can be used for buying and selling in the exchange network, they are equivalent to cash. “the IRS looks at them as if they are cash dollars,” Mike Hartman is a Chicago-based partner at Kach Hartman Ltd., and a trading member for the Chicago Accounting Firm.-based Illinois Trade Association. He and others stated that any expense for business that is tax-deductible in cash form can also be deducted if it is handled as barter.
BALANCING Act:
One of the biggest challenges facing members of barter exchanges is maintaining a balance of trade dollars that is in the company’s best advantage. A good barter exchange will assist its members in maintaining a trade dollar balance within a safe limit.
Even accounting firms that participate in barter exchanges caution that companies need to carefully consider whether bartering is right. “Bartering isn’t for every organization,” Tom Burrill is a CPA and prepares the Seattle business tax returns.-Cascade Trade Association, Inc., a based barter trade Cascade Trade Association, Inc.
For those that do barter, the National Association of Trade Exchanges suggests that a good rule of thumb is to use barter for about 5% to 7% of a company’s business.
Members should also ensure that they conduct business transactions with exchange members with the same scrutiny as any other business transaction. Although many exchanges restrict their membership to only reputable businesses, traders must make the final decision.
ACCRUAL ACCOUNTING METHOD
The IRS considers bartering accounts as accruals, regardless of whether they are operated on accrual or cash basis.-The based accounting method. The agency recognizes trade dollars as income as soon as they are credited to a company’s account, even though the company may not receive products or services for them until a later date. Trade dollars are income when a business trades for them.-related product or service through an exchange results in a negative balance of trade dollars – in other words, more products or services were received than paid for with trade dollars – the trader can claim a tax deduction for a business expense without having spent any cash.
Timing IS VERY Important:
The ideal time to start bartering depends on each company’s ability to maintain a large cash flow. “I wouldn’t recommend barter for someone just starting out in business, unless they have sufficient capital backing,” Jack Schacht is president of Illinois Trade Association in Chicago, where there are nearly 4,000 members.
Bartering is a way to help companies grow if they don’t have the capital. “If you’re on a limited budget and have to wait a year to print a brochure, bartering can give you that extra budget, said Dale. She added that when an accountant member of her exchange took on a partner and needed to quickly develop new business, she put him in touch with four companies that have since become regular accounting clients. “He increased his business without having to go out and sell himself,” She said.
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Experienced traders will carefully monitor their level of bartering throughout the year, making sure that their balance of trade dollars doesn’t get too far on either the positive or negative side.
Some traders build up their trade balances in anticipation of a seasonal or major need. Worldwide Security will accumulate tens to thousands of trade dollars towards the end of the year, in anticipation of a major advertisement campaign it usually runs in its first quarter. “When I’m planning to put on a big blitz through a radio campaign, I start banking credits,” Mara noted that Mara barters with 10 broadcasters.
MIXING CASH AND BARTER:
Most transactions in retail barter exchanges are completely cashless. A rare exception would be transactions that are unusually large, such as for advertising worth $1 million. If a deal can’t be closed with that much in trade dollars, the two parties might agree to mix cash into the deal. “If companies cannot offer their products at 100% trade, they cannot be part of Cascade,” Steven White, President, noted that cash is only about 5% in the trades his brokerage brokers. Cash is more common in corporate barter trades, which are often done on a greater scale.
NATURAL FOR ACCOUNTANTS
Bartering is a growing trend that’s good for accountants. Their diversification into other practice areas coincides well with a need for different types of business services. “Accountants and attorneys are the bread and butter of barter exchanges,” McDowell added, “As CPAs become more diversified, it brings more value to them in exchanges.” He said that many CPAs participate in barter exchanges to learn how they work. This is often after being told about them by clients. Once you’re involved, “CPAs become some of our best members,” McDowell agreed. “They often have clients with excess inventory, and they recommend them.
Professional services firms also make good prospects for joining exchanges because their fixed operating and capital costs don’t usually increase through bartering. “We’re a natural for accounting firms,” White.
BARTERING FOR THE FUTURE
Bartering, like many other industries, is under pressure to be more efficient, more widespread, and faster than ever before. Together with larger barter companies, The National Association of Trade Exchanges and many other large organizations, they are looking to the Internet, modern software programs, and technology to ensure bartering has the same vital role in the future as business.
Course Features
- Lectures 0
- Quizzes 0
- Duration 50 hours
- Skill level All levels
- Language English
- Students 400
- Assessments Yes