Your gift certificates set-up could actually cost your business.

Let me counts the ways...

When I look behind the scenes at how salon computers are set to allow customers to buy and redeem gift certificates, I come across all kinds of issues that can hurt the bottom line when offering this otherwise powerful service offering.

1)       The first consideration is; do you option 1, - pay sales tax on the date of sale of the gift certificate or option 2, – pay sales tax on the date of redemption against an actual service or product?

Surprisingly a remarkably high percentage of gift certificates purchased are not redeemed and even then, not always for the entire amount purchased. Therefore why pay tax before you know exactly what your tax obligation for providing a service or product sale will be, if at all, should the practice of paying tax on the date of redemption be allowed in your jurisdiction?

2)       The second consideration is; if you do use option 1. The sale is recorded as business income on the date of purchase and so on the later date when the certificate is used it is then recorded as a discount to the value redeemed. So has an effect on your performance reports. It shows higher takings than work done at the time of sale, then lower taking than work done at the time of redemption!

This means your average bill looks worse than it should be at a later reporting period and depending on the way you pay commission, could mean different or new members of your team are paid to be busy on clients who will now be recorded as a 100% discount at the time of redemption.

Using option 2. The sale is actually recorded as sundry income, which means you still bank it as takings but it is kept as deposit against future redemption. This means your takings are still higher at the time the gift certificate was sold, but who not only wait to pay the sales tax until it is redeemed against an actual service or produce item, at the time of redemption there is no need to record a discount as the redeemed amount is simply subtracted from the balance, like an account that was in credit.

This means your average bill and team performance is not affected any lower than the actual service and retail sales completed on the day.

3)       Which leads to the third consideration; do you track both the sale and redemption accurately? Once a gift certificate is sold, then whilst ever the terms of redemption remain valid, the value of the certificate stands as a future liability to the business. In both options we bank the money up front, but we still have an obligation to honour the sale at a future date. Unless we accurately subtract the value of redeemed purchases when the gift certificates are used, the liability remains recorded against the business balance sheet, which can really be an issue for future investors, lenders and buyers as each outstanding certificate has the possibility of being called upon after their financial involvement, so you need to be sure which of these promissory transactions are still active against valid gift certificates which might be produced at reception any moment.

4)       The final cost consideration is; how do you issue your gift certificates? Printed certificates will always have printing costs, but pre-valued certificates, where produced at nominal face valued of say 5, 10, 20, 50 and so on, even more so. Not only because they often require multiple slips to make up the required value of the gift, but also, depending on the salon policy, because of the difficulty to reissue the bearer with any unused balance, against the original tracking number. A more cost effective method would be to write the exact value and corresponding tracking number on non-disclosed valued gift certificates. More professional still is to invest in the ability to provide your clients with there on loyalty gift cards which can work with your barcode scanner each time you wish to credit or debit the value left on your own salon branded durable card. 

©  Wayne Kranz 2011