I recently reviewed the stack of gift cards on my desk. In my case, the gift cards were predominantly from restaurants and I felt compelled to take advantage of using them by making a dinner date with my wife and friends. And of course, because I am an accountant, this got me thinking about the financial benefits for any company that issues a gift card. But for restaurants in particular, gift cards can assist in increasing cash flow and profitability.
Now most of the cards were given to me as gifts. Not only does this assist in a restaurant’s marketing efforts. But in my case, it assisted in creating a new loyal client. I had never been to this particular restaurant. And, if not for the gift card, I may not have felt compelled to try dining there or inviting friends. But after having a great evening out, this restaurant has not one, but four new clients. This certainly is a big win for the restaurant.
Increased Cash Flow
Consider the gift cards on my desk are only for $50 a piece. Undoubtedly, I will be spending more than $50 on dinner. So, the fact that most people spend more than the face value of a gift card, denotes another benefit for the restaurant. But wait, there’s more! Consider the fact that the cash comes in the door immediately but there is not a penny of labor or food cost laid out until the card is redeemed. Talk about having your cake and eating it too!
There is yet another benefit to gift cards. Now, I haven’t reviewed recent statistics, but I know that gift card breakage – that is, the portion of the gift card that is never redeemed – can be a huge revenue component to a restaurant’s bottom line net income. So the folks, other than the organized accountants like me, who lose the cards, forget they have them or leave them forever unused, create a 100% return to the restaurant.
If you are a restaurant owner who is not participating in the gift card craze, you should consider the benefits of issuing them. Restaurants.com is a good place to start if you are thinking about participating in a gift card program. It is also a great site if you are a consumer as you can buy a gift card from basically any restaurant.
The benefits to your recognition factor, cash flow and bottom line are worth looking into. And, as always, feel free to contact me if you have any questions or concerns about the accounting or tax ramifications of issuing gift cards. I am always here to help.