How to share costs with other small businesses

Through periods of economic uncertainty, small businesses can get creative with cost-saving strategies. Partnering with other small businesses for cost-sharing is one way to save money.

What is cost-sharing?

Cost-sharing is “a process wherein two or more entities work together to secure savings that one alone would be unable to obtain,” according to the Inc.com Encyclopedia. For most small business owners, health insurance is probably the most familiar example of cost-sharing—micro-businesses with one or two employees can better afford health insurance by joining a group plan comprised of many small businesses.

But there are other cost-sharing partnership possibilities to help small business owners save on operational costs. Here are a few ideas:

Access to technology

With more business owners and employees working from home, you may find other businesses looking for access to your business’s high-speed internet, computers, or even your office’s copiers. By offering your business equipment to others in need you may be able to barter other services or charge a small fee to help defer the costs of your Wi-Fi and other utilities.

Marketing

Finding and sustaining new customers might seem like an insurmountable feat during these crazy times, but by reaching out to fellow owners in the same boat you may find the process not as difficult.

Cost-sharing on flyers, direct marketing brochures, social media campaigns, and more could open a new target market.

Supplies

Many business owners are struggling to find new suppliers. By cost-sharing, you and your partner businesses can save by ordering discounted bulk orders while also discovering new supply chain sources in your local community.

Distribution

There are several ways to join forces to get your products in the hands of customers. And while the arrangement may only be temporary, once you set up the partnership, you might find it works for you on a more permanent basis. Food businesses, for instance, are finding it cheaper to sign up with delivery services like Postmates, Grubhub, Uber Eats, and DoorDash rather than hiring extra delivery help. You can also “cost-share” with customers by making more of your business self-serve and DIY. Salons, for example, can package to-go hair treatments instead of doing the service themselves.

Finding a cost-sharing partner

In times of uncertainty, people often step away from being competitive and embrace the concept of “coopetition”— cooperating with your competitors. It shouldn’t be hard to find other businesses to start a cost-sharing partnership with. Call or email your city’s business development office, post a message on your website or social media platforms or ask your current suppliers for partner recommendations.

The key is to make sure the agreement is clearly defined, meaning the terms are detailed and there is an end date to the agreement. Like any contract, everyone’s obligations and responsibilities should be spelled out and as well as courses of action should the partnership need dissolving. Ask your attorney to look over the agreement in case there are scenarios or events you haven’t covered.

Cost-sharing and the IRS

It’s a good idea to also have your accountant look over your cost-sharing agreement to see if the IRS would consider the partnership a bartering arrangement.

The bartering the IRS cares about is for the exchange of goods or services in the commercial sector. If you use a bartering exchange, the exchange is required to report the transaction and can guide you through the correct reporting process. If you set up the bartering transaction yourself, you must include the transaction as gross income. You can find more information on the IRS website.