Belly up to the Barter, BoysPosted: May 8, 2012
Bartering can be a great way to conserve cash when you use it with a few guidelines to keep the transaction square and your real cash flowing.
First, structure all barters as if you’re trading actual bucks. If you bill $100/hour for your services and you’re bartering for a $25/hour service, each of you should bill your usual rate to the other. Trade invoices just as you would for cash-paying clients, then enter these transactions in your books as if you received an invoice and paid cash. Note that if you’re trading goods instead of services, or swapping services for goods, or any combination, valuation works in the same way. Sell your usual stuff at your usual price.
Second, record bartered sales and receipts as you would any other transaction. You may want a separate line item in your chart of accounts to record bartered transactions to make it easy to monitor, or simply make a memo for any barter entries.
Third, bartered income is taxable in the year it’s earned, and bartered expenses are deductible as if they were cash. I just lump all bartered transactions in with my usual recordkeeping. That way, I don’t have to worry about reconciling any impact bartering has on my tax liability.
And finally, avoid the overswap. Don’t let bartering keep you from earning the cash you need for non-bartered transactions. I permit myself to barter for any budgeted (read: essential) line item, since it will have only upside impact on my cash flow. I also don’t barter for any more than 5% of my total billable capacity for any optional expenses.