Thinking about selling gift cards to get through the crisis? Be careful! Selling a gift card to fund current operations can be a huge mistake. First, you must account for a gift card as a liability on your books (like a loan). So if you’re looking for a loan, having outstanding liabilities reduces the amount you can get and increases the cost of money.
Second, if you use the cash from gift cars to fund current operations, when you re-open in some form of normalcy, you will need to have the funds to re-start your business (this is especially true for food service businesses!).
So, a pizza shop that sells $5,000 worth of gift cards and spends that $5,000 before re-opening is now faced with the daunting prospect of having no cash, owing $5,000 and needing $5,000 worth of materials to start up. Bad news.
Worse news – you manage to find the $5,000 to get the shop re-opened and everyone shows up with their gift cards and buys $5,000 worth of food – but this leaves no cash in the register.
A better model for a food service shop might be to sell “memberships” to your business – a Pizza Shop membership entitles you to 2 free slices and a drink, once a week, for a year. It’s sold as an annual membership and it costs – amazingly – the same as a $50 gift card!
READ MORE ABOUT GIFT CARD ACCOUNTING HERE: https://www.accountingtools.com/articles/2017/5/17/accounting-for-gift-cards-gift-certificates