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Gift Certificates and Gift Cards
business side

By Laura Allen

Originally published in Massage Bodywork magazine, July/August 2010. Copyright 2010. Associated Bodywork and Massage Professionals. All rights reserved.

For many massage therapists, the decision to sell gift certificates is a no-brainer. They're often given to someone who's never been to your business, or maybe someone who's never had a massage at all, thus bringing new business in the door.

Gift cards have also become a booming business. Gift cards differ from gift certificates in that gift certificates for massage are usually only sold at the actual business, or perhaps online through the business website, while gift cards can be purchased almost anywhere--grocery stores, convenience stores, department stores, and banks. Gift cards are often referred to as "stored value" cards, but are really prepaid credit cards. Some gift cards may be issued by, and are only redeemable at, specific merchants, like Starbucks or Amazon.com. Other gift cards that are issued by banks may be spent anyplace that accepts credit cards.

There are laws governing gift certificates and gift cards in most states, and unfortunately, those laws vary a lot--including the definitions of gift certificate and gift card. Many states also have provisions regarding what fees may be assessed on them (if any) rules governing expiration dates, and still more rules governing escheat provisions (by which the government may reclaim abandoned or unredeemed property).

According to the Federal Reserve Board's website (www.federalreserve.gov), as of July 1, 2010, new federal laws will take effect governing gift cards. In addition, 20 states have pending legislation regarding gift certificates and gift cards. Any practitioner in a state with laws more stringent than the federal laws will be expected to abide by the more stringent law. Here are some steps you should take to ensure you're in compliance with gift certificate/card laws.


Get Ready to Sell
If selling gift certificates appeals to you, there are several ways to get started. One way is to sign on as a redemption center with a national network. Companies such as SpaBoom.com and SpaFinder.com sell gift cards for massage and spa services at major grocery and department stores; any practitioner can honor those by visiting the issuing company's website to sign up and faxing the company a copy of your credentials and a signed agreement authorizing you as a vendor. You'll be listed on the company's website as an approved redemption center.

The same companies, and others like TheGiftCardCafe.com, can also set your business up to sell gift certificates through your own website. It's a great convenience to your clients and to out-of-towners who want to purchase a gift for a local friend or relative. By linking in with national networks, you get the added benefits of a permanent record of your sales transactions, including the purchaser's name and contact information, the recipient's name, and credit card information, which is kept on your password-protected personal page on the company's secure website.

The other way to get started is to issue your own gift certificates. Massage Warehouse (www.massagewarehouse.com) and other suppliers offer preprinted massage gift certificates; you can buy generic gift certificates at any office supply store; or you can print your own on a computer. If you follow this path, include certain basics on your certificates, including your company's name, phone, website, address, and any other crucial information, such as your hours of operation and your cancellation policy. My cancellation policy is stated on the certificates I sell on my website and those sold in-house, with the statement that failure to honor the policy will result in forfeiture of the gift certificate.

Advertising the fact that you sell gift certificates and honor gift cards is sure to bring in business--especially from existing clients, who can be counted on to spread the word to others.


Checklist for Your Business
Once you've made the decision to sell, make sure you understand the related needs for your business. Gift certificates are a great source of income, because the fact is, many of them will never be redeemed at all--meaning a pure profit for you.

Know the Regulations
It's important to know the laws that apply to gift certificates and gift cards prior to getting started. The most glaring of these new federal laws prohibits selling certificates or cards with an expiration date of less than five years. I've previously made my own gift certificates good for one year (though I've never refused to honor one). This past Christmas, a business owner who purchased gift certificates for all his employees specifically asked me to put an expiration date of 30 days on the certificates, with the stipulation that they would revert to his own use after that, and he made that clear when he distributed them. Maybe he was desperate for his staff to de-stress, but that type of thing will no longer be allowed after July 1.

State laws range from short and lenient to long and complicated. Not all states have escheat provisions, but they can vary significantly where they do exist. For instance, the law in North Carolina states that a gift certificate cannot be considered abandoned until it is three years past the expiration date, and at that point, 60 percent of the face value is supposed to be turned over to the state department of revenue. In Kansas, the current statutes affect gift cards only, while specifically excluding gift certificates. Some states further complicate the issue: in Montana, the statute says gift certificates should not be presumed abandoned if the total gift certificate sales of the business during the previous fiscal year were less than $200,000. To the majority of massage therapists, that's probably not a concern. Your state government website likely has a search feature that will allow you to quickly look up the gift certificate laws in your state.

When a massage therapist lives near a state border, he or she may be practicing in more than one state. The law can be very different in neighboring states, so be sure you're clear on your responsibilities everywhere you practice.

Understand the Accounting
Most small business people opt to use the cash method of accounting. In the cash method, you report money coming in and money going out in real time--cash is counted when it comes in and reported as going out when you pay a bill.

In the accrual method, transactions are counted when the services occur, regardless of when the money for them (receivables) is actually received. The income is counted when the sale occurs, and expenses are counted when you receive the goods or services. You don't have to wait until you get the money, or actually pay money out of your checking account, to record a transaction. If, for example, you employ other therapists and pay them at a set time, including payment for the work they do when honoring a gift certificate, your accounting may be impacted. So, if you sell a gift certificate this year on December 1, but it isn't redeemed until the following March, in which year do you need to report the income? If you use the accrual method, you would report the sale on December 1 and record the gift certificate as a liability. The safest course of action is to check with your accountant or tax professional to make sure you are handling your business finances correctly.

Remember that gift certificates should be viewed as a liability, and not strictly a monetary one; you've already received the money, but you still owe the work.

Keep the Records Straight
Different issuers handle record keeping in different ways. Let's say a client purchased a gift card from SpaFinder at a department store. Other than the receipt he or she may have kept, there is no record of the purchase. The name is not written anywhere as the owner of a gift card. If you accept a SpaFinder card, the company bases its payment to the therapist on a bar code. The name of the person who purchased or redeemed it is of no concern anywhere in the transaction.

Some massage therapists may run their business in the same manner--not recording gift certificate sales. A nail salon I visit frequently sells gift certificates that state "Treat this certificate like cash. We are not responsible for lost or stolen gift certificates." There is no place on the certificate to write "to" or "from"; it only has a place for a dollar amount.

Other therapists record every gift certificate sale, along with the giver's and recipient's names, amount of the certificate, and expiration date. That's how it's done in my office. If someone calls and says they've lost a certificate, we can honor it anyway, but we note in the log book that the certificate was not presented at the time of service so we know not to honor it twice.

While it may be diligent of you to keep a record of the person who bought the certificate, the date of purchase, the name of the recipient, and so forth, I was unable to locate any law that requires that in any state.


The Tricky Business of Going Out of Business
What if you go out of business and you have gift certificates that haven't been redeemed? If you've kept records of purchases, it would be good professional business ethics to attempt to contact the buyers or recipients and let them know that you're closing your business and the recipient has X amount of time to redeem the certificate. If you haven't kept such records, you could run an ad for a period of time stating your last date in business and that anyone with unredeemed certificates should call immediately to schedule an appointment. As long as you have made a good-faith effort to contact people, you've done your best. The key is to handle it before closing your business.

Only five states have laws specifically relating to unredeemed certificates when a business closes (California, Montana, New York, Oklahoma, and Washington). Since the law doesn't address this in many places, consumers may have no legal recourse, but if there is a chance you would open another business in the future, clients left with an unredeemable gift certificate are not likely to patronize you again. Alternatively, they may show up with the gift certificate from the defunct business in hand and expect you to redeem it.

If you're in the financial position to do so, you might consider honoring the gift certificates of a competitor who has gone out of business. No doubt, this could earn you a lot of goodwill and customer loyalty, and the expense is a tax deduction for you. Putting a time limit, dollar limit, or both, could keep you from overextending yourself.

Laura Allen is the author of Plain Simple Guide to Therapeutic Massage and Bodywork Examinations (Lippincott Williams Wilkins, 2009) and One Year to a Successful Massage Therapy Practice (Lippincott Williams Wilkins, 2008). A third book, A Massage Therapist's Guide to Business, will be published by Lippincott Williams Wilkins. Allen is the owner of THERA-SSAGE, a continuing education facility and alternative wellness clinic with more than a dozen practitioners of different disciplines in Rutherfordton, North Carolina. Visit her website at www.thera-ssage.com.




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