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As the economy slows down and money is tight, a smart business owner will find a way to get rid of extra merchandise that they don't need and acquire merchandise they need. The most productive way to accomplish this is through trading merchandise with other businesses, also known as bartering.

This is the most ancient method of doing business. No money is needed. I have what you need and you have what I need. We trade one sheep for one goat. In the modern world it doesn't work quite that way. I need a computer; you need tires for your delivery vehicle. I sell advertising and you sell pizzas. This is where bartering for business becomes an advantage of the savvy barter network members.

For this reason, smart business owners will join a barter exchange. A barter exchange serves as a clearing house for each of its member companies, something like a bank. Each barter exchange will track its clients' credits and debits as they barter goods and services with each other. Such exchanges charge a fee to join, a fee to maintain membership each month, and usually ask for a small share of each transaction to maintain their operations.

Your products are sold through the exchange at full retain value. There is no discounting so you do not lose the value of your goods and services. This also helps your business increase productivity. Downtime and unused capacity are reduced and converted to credits in the exchange.

Another advantage to joining a barter exchange is other members will see your business. Your business will be advertised for free. Also this is similar to hiring an extra person to sell, but you don't have to pay anything for it. If the other members like what you have to offer, they will tell their friends and they will probably end up being cash paying customers.

One caveat: the fact that actual cash is not exchanged has nothing to do with tax consequences. In the eyes of the IRS, barter of goods and services are considered as if they were cash transactions. At the end of the year, all member businesses receive IRS Form 1099B. All income, whether from cash transactions or barter, must be reported on your yearly income tax return. There are advantages to barter transactions, which are useful business services providing you with more control over your cash and inventory, and these advantages are worth the small price you pay in the form of tax on barter income.

Joining a barter exchange is a wise choice for the majority of businesses, and is especially beneficial for cash poor startup companies. This service helps to increase your customer base, and help you obtain goods and services while preserving capital. Established businesses can benefit from the exchange as well, through an expanded customer base, increased sales and a decrease in excess inventory.