Bartering is the process of exchanging goods or services for other goods or services without the use of money. While this alternative form of payment is generally thought of as an antiquated business practice, it is a practice that may prove to help businesses survive the economic impact of crises. The primary benefit of exchanging goods or services is that it preserves your working capital. During a time of economic crisis, business owners must get creative in generating income, making barter transactions a worthwhile option. At the same time, these agreements should be carefully planned to avoid the most common mistakes.
Carefully planning terms of your barter agreement is necessary to protect your business. This type of transaction requires additional due diligence since it is easier to stiff someone on a trade than in a traditional cash transaction.
Take into consideration the following four pitfalls to avoid in barter transactions:
- Choosing a bad trade partner. Ensure the items or service, offered by a prospective trade partner, are of value to your business. Verify the items or service are of good quality. Secure a readily available point of contact should problems arise.
- Not planning for taxes: The IRS makes inquiries about barter transactions during audits. In general, barter transactions are taxable, with a few exceptions, such as a “like-kind” exchange in commercial building transactions.
- Not using an original document: It is tempting to reuse another company’s contract. Avoid this temptation. You can find many barter agreement templates online that appear to be written by lawyers. Non-lawyers redrafted many of these samples. Reusing someone else’s barter contract could be considered copyright infringement as well.
- Not evaluating Fair Market Value (FMV) accurately: Beauty is in the eye of the beholder, which means that barter transactions are highly susceptible to debate over the FMV of the items or services in exchange. Significantly over- or undervaluing the trade can result in one party ending up on the wrong side of the deal.
The most practical way to avoid mistakes in a barter agreement is by discussing the exchange with a Florida contract lawyer. He or she can counsel and represent client interests in establishing fairness.
Contact Boyer Law Firm, P.L. to Draft Your Barter Agreement
If you are considering barter agreements as part of your business during the COVID-19 outbreak, you should reach out to a Florida business law attorney at Boyer Law Firm, P.L. We can review your current business situation and provide additional recommendations to strengthen your company’s stability on a solid legal foothold.