Bartering for IPs

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By Gayle O'Brien

Do you love being an independent professional? Do you relish the freedom, the flexible hours, the four o'clock naps?

Well, save it for your high school reunion -- being an IP is not a big boss-free vacation. The road to self-employment features some bumpy potholes and ugly-ass scenery. There's the quarterly taxation, the high start-up costs, and the occasional difficulty in getting stuff that W-2bies are served on silver trays. Now there ain't much you can do about the taxes, but there is a way for IPs to squeeze by the other pitfalls. What's the secret?

Glad you asked.

Bartering's the word. (Actually, Grease is the word -- but we're not talking about John Travolta movies here.) Service trading, or bartering for goods and services, is a common but under-publicized bonus to freelance life.

UK Law

Sally Hepburn of Sussex, England, was an employment lawyer before becoming a stay-at-home mom. After her daughter was born, she wanted to return to work part-time, but no firm would allow her to work from home on a regular basis.

And then, one day...

"A friend of a friend runs a day-care center, and one of the nannies was caught smoking on the premises," she recalls. "She was terminated, of course, but then tried suing the center for wrongful dismissal." As a favor, Hepburn wrote the legal letter for the center, and the ex-nanny dropped the case. "The center's manager was so grateful. They not only avoided taking the matter to court, which would have cost them more than they could afford at the time, but they saved the money a lawyer would have charged them to write the one-page letter." The manager offered Hepburn free day-care services in return.

"It was an offer I couldn't refuse," Hepburn says. "The center is just down the road, so I could work from home but know that my daughter is close by and well cared for." The day-care center became a sort of marketing bazaar for Hepburn. "Pretty soon word got out that I had helped the center out, and when I'd go to pick up my daughter, I'd get all sorts of inquiries." She began helping people buy and sell houses, write wills, and negotiate divorces for other day-care parents.

"One of the mothers is a masseuse and sadly was going through a divorce," says Hepburn. "She didn't have a lot of money, and asked if she could massage me in return for my negotiating her divorce." Hepburn has also bartered for haircuts, and got free letterhead stationery and envelopes from her local stationers: "I did all the legal work when they sold their house."

Hepburn adds that the exchanges aren't always balanced: "Sometimes I know I'm not getting in return what I've given." She normally charges about £85 [$150] an hour for her services, and some barter equivalents work out better than others. "It definitely evened out with the masseuse: I was there once a week at least. But I've done more for the stationers than I'll ever need in business cards and envelopes -- though they've really helped spread the word about me, which is priceless."

The day-care center continues to provide Hepburn with contacts and her daughter with supervision. It's a matter of balancing baby and business.

A Little Bit of Bartering

Most IPs don't barter for big-time necessities like childcare. In fact, much of the bartering that freelancers engage in is about exchanging small amounts of goods or services.

For Jesse Milden, a Web and print designer based in New England -- Massachusetts, to be geographically correct -- most swaps were for friends who needed a hand. Milden has worked on his local cinema's Web page in exchange for free admission, has designed an invitation to an expensive dinner party in exchange for free tickets, and has done design work for a bar in Manhattan in exchange for free drinks. Unfortunately, says Milden, "I usually felt like the work I was doing was worth more than what I got in return." But these small projects were good additions to his portfolio, and he still swaps when such opportunities arise.

Why might you want to do just a little bit of bartering? Well, it's a low-risk way for you to dip your toe into the trading pool. Or, like Milden, you might do it for social reasons. It's good for the soul, good for your image, and as Jesse Milden found out, good for livening up a Saturday night.

Start Me Up

Okay, you're hot to barter, but you don't know where to begin. What to do? Head straight for the ole information superduperhighway. In fact, the Internet is a virtual goldmine of bartering associations and resources. Organizations like the National Association of Trade Exchanges (NATE) and the International Reciprocal Trade Association (IRTA) are smart places to start.

Trade exchanges provide a framework for bartering (and a good way to avoid the problems that Hepburn and Milden faced in getting equitable swaps). They monitor transactions, offer you a variety of bartering partners, and set ethical guidelines by which everyone will swap. Sounds perfect, right? Well, not exactly. For example, if you want to play, you have to pay -- and then pay some more. Usually you have to fork over a healthy membership fee (several hundred bucks) and then pay commissions (in cash) on your exchanges. These costs can add up. Also, some bartering exchanges are very poorly run -- so before you enlist with any group, do some investigation. Make sure your exchange has been approved by the Better Business Bureau or some other consumer protection organization, that it informs the IRS of its dealings, and that it offers the sorts of things you want and/or need. There are all kinds of exchanges out there, and if you get caught in a bad one, you'll look longingly back at the good old cash-only days.

If you're not comfortable going through an exchange, start asking your freelance friends -- you never know who might be willing. Find a bartering bud, negotiate a fair exchange, and get swapping.

Exchanging services, in the eyes of the IRS, counts as income, and they want you to include this when you declare your earnings. According to the IRS: "The fair market value of goods and services exchanged must be included in the income of both parties."

Bartering and the Wranglers of Revenue

No one is pickier about bartering than the IRS. Exchanging services, in their eyes, counts as income, and they want you to include this when you declare your earnings. According to the IRS: "The fair market value of goods and services exchanged must be included in the income of both parties." Reporting your bartering activities to the wranglers of revenue is an intricate process, though this doesn't discourage many IPs from swapping services. In fact, many IPs simply don't notify the IRS about their adventures in bartering. This makes the IRS unhappy.

The good news for those off-the-record swappers out there: income generated from service trading can be incredibly hard to track. According to Cameron S. Foote, author of The Business Side of Creativity: The Complete Guide for Running a Graphic Design or Communications Business, "the IRS admits that bartering is almost impossible to detect unless done often, or in very large volume." Still, if you are going to be a good little IP and declare your trades on your taxes, be careful: it's best to put bartering agreements in writing.

The $64,000 Question

Let's say you swap services and report it to the IRS. You fill out the forms, do the calculations, and act like a regular Boy Scout. (Or Girl Scout. Whatever.) Sure seems like a lot of work. The $64,000 question: Why bother? Isn't it smarter to do business as usual?

Depends. When all is said and done and exchanged, it's probably less of a migraine to simply take money for your goods and services. After all, our society is set up to deal with cash-based exchanges, especially in multi-stage transactions -- imagine trying to pay taxes with the massage you got for doing your physical therapist's books. Nonetheless, that doesn't necessarily mean you should avoid taking the unconventional route. As an IP, you know that the unconventional route is sometimes the most interesting road to follow.

The real advantage of bartering is that it gives you a strong feeling of getting as good as you give.

One great advantage of bartering with an IP or a small business: it gives you a strong feeling of getting as good as you give. Bartering lets you and your trading partner show off your work to each other. It gives you a truly appreciative audience for your work -- and that's the kind of thing you can't get from some big, impersonal corporate client.

To find out more about the pros and cons of the bartering life, consult the chart below. And if this doesn't answer your swapping questions... go get yourself a Magic 8-Ball.

The Chart O' Bartering

Pros	Cons
Bartering can be a cheap means of marketing -- in today's culture of big name brands and chains, word-of-mouth publicity is often a saving grace for many IPs who are waging war with corporate Godzillas. You barter with someone and you have a potential walking, talking testimonial.	You shouldn't count too heavily on bartering as a way to market yourself. Sally Hepburn was fortunate that her day-care center turned into a marketing bazaar for her; you probably won't be so lucky. As far as creating a good buzz about yourself, you might be better off looking into direct mail or making some cold calls.
Bartering allows beginners to build up their portfolios and demonstrate their professionalism.	Warning: this isn't as easy as it sounds -- especially for a new IP. A freshman freelancer will probably need terrific sales skills to convince someone to barter with him, or a swapping partner who is equally inexperienced.
Bartering is a good way to defray start-up and maintenance costs. That is to say, bartering can help you hold on to your limited pile of cash.	You can only cut down so much of your start-up costs with bartering. If you're just beginning, and unable to command a proven veteran's rates, your newbie status is may put you on the losing end of a barter deal.
Bartering gives you a chance to work closely with all kinds of interesting, non-corporate people, such as local IPs and small business owners.	"Real" clients (that is, companies you can actually make a living working for) are unlikely to barter.
Bartering can teach you new ways to negotiate -- and it can give you fresh insights into client relations.	You can waste a lot of time in the bartering process. It tends to distract IPs from their real work.
Bartering is informal and fun. Most bartering exchanges are done by verbal agreement. (It can be a nice change from the formalities of long-term contract work.)	The loose nature of most bartering agreements means that you're stuck if your barter buddy decides to cut out mid-task. If you report services rendered to the IRS, you have to place a value on what you've delivered and what you received in return, which is difficult and can be time-consuming.
Bartering can help you get a product or service that you couldn't normally afford. Say you're an uninsured astrologer, and you'd like to visit a dentist. You may be able to get some mystic-minded D.D.S. to clean your teeth in exchange for a palm-reading session.	Getting a fair exchange for what you think your services are worth can be tough. You might find that you're selling yourself short in desperation, or that what you're offering is financially more valuable than what you're getting.

Some people think bartering is silly -- a primitive technique from the days before money was invented. Others find it to be creative, fun, and even practical. Literally, quid pro quo means something for something for something -- and you'll have to decide for yourself whether it's something that makes sense for you.

June 12, 2000
Primary Editor: Ken Gordon
Illustrator: Steve Smallwood
Production: Fletcher Moore

We'd love to hear your comments about this article!

Gayle O'Brien is a freelance writer who lives in Borehamwood, England. If you like, we'd be happy to put you in touch with her, or with any of the other IPs named in this article.