Loading...
Answers
MenuHow do i handle gift certificates when buying a business?
I'm helping a client purchase a business and there are a lot of gift certificates circulating. We're not sure how to handle this as the seller doesn't even know how much 'value' is circulating in the public.
Answers
Great question, this is something that can be handled with a proper deal structure involving some vendor financing.
I recently did a video about this very topic for one of my YouTube followers. Check it out here: https://youtu.be/hWm4ZQxWlEw
You basically make the vendor's outstanding gift certificates a 'currency' which can be used by the buyer to repay the vendor loan. It's a net-sum game for the seller since he's already received the cash without having to provide the goods or services.
Hope this helps. Feel free to schedule a call anytime you have a question about business transactions.
David
Consider adding what is called a "Goodwill" this is the proceeds of what is being paid for that is projected outside of traceable assets in the business. Your situation is not typical use for business goodwill but i think it could be easily applied as it certainly adds value to future earnings and acts as branding for your acquired business.
I would recommend coming to a consensus of ratio of sales:gifts then claimed:non-claimed from that gift ratio. Because goodwilll applies to branding and market recognition, assuming the gift certificates have aged, the goodwill value of the gift certs have low value to seller and high value to buyer (as if buying at discount). This benefits the buyer while seller still gets some compensation for sales value added to the business itself.
my most basic approach would be to
TA = Total Asset Value
CC = % of Agreed upon Circulating Certificates
GR = Going Market Rate
GW = Goodwill Estimate
NW = Net Worth = Assets - Liabilities
TA/NW = Assets - (Liabilities+CC)
GW = TA - CC
GR (what you pay to acquire) = TA + GW
my approach only, I am not an accountant, I simply have an MBA and have simply general good understanding of your situation.
The balance of gift certificates outstanding should be listed as an advance deposit on the balance sheet and treated as a liability until they clear - assuming the current owner recorded them properly. Then, when they clear, the revenue is recognized. Accordingly, as a liability, it would reduce the value of the business as part of owner's equity at the time of valuation and subsequent sale.
In the case where the seller does not know the value, hopefully there were records of money collected in the deposits and noted as such. That could be determined through an audit, assuming there was enough to be concerned with and a journal entry would need to be made as a liability for that amount on the balance sheet.
Handling gift certificates when buying a business is easy. However, selling gift certificates can help a variety of businesses increase sales no matter the situation or time of year. Whichever route you choose, just add the essential information like what each card is redeemable for and when it can be used. You can also get up and running quickly by selling online gift certificates, which will be covered later in the post. They can cover a set amount of money or a specific type of product or service, like a free lunch or a spa service of the person’s choice. If you are interested in using gift cards for your business, there are services like Square, Gift Up and GiftFly that you can use to get up and running quickly. Additionally, avoid placing gift certificates on display in your store or posting exact pictures of them on your website so people cannot easily copy and edit them. You should also make sure they have a unique design, potentially even using hidden element like a watermark to make them specific to your business.
However, businesses are generally not allowed to refuse to honour a gift card unless the customer violates a term that’s clearly laid out in the terms and conditions of the card, like presenting the card after a clearly marked expiration date. You must also clearly outline any terms and conditions on the card and avoid changing those without the customer’s knowledge. Selling online gift cards may currently be an especially attractive option for businesses in areas with very restricted foot traffic. However, it can also help companies that operate mainly online in general. Then at checkout, have customers share their email address and you can send them a copy of the gift certificate that they can either print or access on their mobile device. You can even automate this part of the process through your sales automation software if you have one.
Add a “Buy Now” button to your website. Then either send gift cards via email to each customer as they purchase. Or get them to send out automatically when that product is purchased. And make sure customers know that they are available. Place display signs and promotional materials where customers will see. For example, does your restaurant offer gift certificates to boost sales during the coronavirus outbreak. Online, feature gift certificates prominently.
Put them on your website and social media profiles. Some customers remain employed. They look for ways to help their favourite businesses stay afloat. Make it easy for them to buy online.
Additionally, post on social media. Offer discounts or promotions to entice customers even more. Use it to increase the amount that each customer is likely to spend. Annie Pilon is a Senior Staff Writer for Small Business Trends, covering entrepreneur profiles, interviews, feature stories, community news and in-depth, expert-based guides.
Besides if you do have any questions give me a call: https://clarity.fm/joy-brotonath
Related Questions
-
Business partner I want to bring on will invest more money than me, but will be less involved in operations, how do I split the company?
Cash money should be treated separately than sweat equity. There are practical reasons for this namely that sweat equity should always be granted in conjunction with a vesting agreement (standard in tech is 4 year but in other sectors, 3 is often the standard) but that cash money should not be subjected to vesting. Typically, if you're at the idea stage, the valuation of the actual cash going in (again for software) is anywhere between $300,000 and $1m (pre-money). If you're operating in any other type of industry, valuations would be much lower at the earliest stage. The best way to calculate sweat equity (in my experience) is to use this calculator as a guide: http://foundrs.com/. If you message me privately (via Clarity) with some more info on what the business is, I can tell you whether I would be helpful to you in a call.TW
-
Is it possible to start a Social Media Marketing Agency with not much experience in Social Media and not much money?
I have to ask why you would start an agency in an area you don't have much experience in. Perhaps you'd be better off getting at least a little experience first?AV
-
What is the ideal percentage of revenue you should apply to a marketing budget for a new business?
I think differently about this, because of two reasons: 1) I've always (and only) been involved in bootstrapped startups; and 2) I've been lucky that those startups grew organically and fast (enough) which minimized our need on marketing spend. Instead of deciding on a specific budget for this, I would instead look at your current priorities (in terms of budgeting and re-investment into your team): 1. Build a great team. 2. Build a great product. 3. Craft incredible customer experiences. 4. Spend money on marketing. If you've already hit all 3 top priorities and you can't reinvest any further into those, then you should start spending money on marketing. If you don't have revenues today and you are hoping to generate revenues through marketing spend, you're on slippery slope (says the bootstrapper). Whilst not wrong, this is tricky and you'd need to take a realistic look at your customer acquisition cost (CAC) and how much you can invest into acquiring new customers.AP
-
Should I hire a bookkeeper? (what does one do exactly?)
NIcole is right. When I first started my business I thought I was saving money by doing my own bookkeeping. It took me much longer than it would take a bookkeeper - all time that I was not spending on marketing or billable activities. And in the end I made errors which made the initial work of the bookkeeper longer. I now have a consistent routine. My bookkeeper picks up all my material monthly and does my books in less than 2 hours. Very worthwhile.RL
-
As a solo freelancer of my company (Incorporation), what are the best practices to grow my business, get more clients, and hire people?
I'm reading a book called, "Disciplined Entrepreneurship: 24 Steps to a Successful Startup" written by Bill Aulet. The 24 steps are broken down into six categories: 1: Who is your customer? 2: What can you do for your customer? 3: How does your customer acquire your product? 4: How do you make money off your product? 5: How do you design and build your product? 6: How do you scale your business Your technically asking a good number of questions and I'm thinking this book might be a good starting point for you.JF
the startups.com platform
Copyright © 2025 Startups.com. All rights reserved.