Gift Cards, Store Credits, & Vendor Refunds in a Business Purchase & Sale Transaction

Jul 19, 2022

The primary reason an entrepreneur engages a business broker is to obtain knowledge, experience, and professional skills they do not possess themselves.  It is the same reason a business owner engages an attorney, accountant, or any of a wide range of outsourced, professional resources.

As a 47-year mergers & acquisitions firm serving the main street and middle market business ownership community that has successfully facilitated over 4200 transactions and features the largest team of brokers in the region, the knowledge, experience, and skill at IBA is highly respected regionally and nationally.

The depth of knowledge at the firm extends into nineteen different industry sectors (  This article focuses on a very specific issue commonly relevant in business sale transactions for retail and service companies who complete transactions where they sell gift cards, gift certificates, and provide store credits generated from returns, customer satisfaction issue resolution, or loyalty programs to their patrons.

The basic issue at hand is prior to a business sale the selling owner of the company either sold a promise to provide value for the customer or provided value that the patron anticipates being able to redeem.  The seller was a beneficiary of a desired outcome, commonly revenue, and the purchaser obtained an asset for the future, a positive transaction from all perspectives.  Selling gift cards is also smart business, as frequently they go unredeemed resulting in pure profit from those transactions for the business owner.  Currently over 50% of Americans have at least one unredeemed gift card and in excess of $15 billion of value has been unspent (  In our present inflationary economy, it may be worth checking your purse, wallet, or kitchen junk drawer to see if you are one of the lucky people who can visit Starbucks, Cold Stone, or a movie for “free” this summer.

The complication in this ongoing, common situation occurs when business ownership changes, as the transfer should not damage any of the three parties involved, the seller, buyer, or the customers of the business.  In fact, many states have laws in place in protect the public in this situation. The following is some information on the relevant laws in Washington & Oregon, IBA’s primary service area as a business brokerage firm:,days%20after%20it%20was%20sold.

The short answer regarding the public is that regardless of who owns the business, they should receive full credit for their prior purchase of a gift card.

As for the purchaser of the business, the important consideration is that they should not be economically damaged when a customer returns with a gift card post sale, after all they will own the merchandise, be compensating the staff, and paying for the overhead costs of the business when the transaction takes place.  So, how should this party be made whole when a loyal customer completes a transaction?

Time to think about the seller in the business sale transaction, what is fair from their perspective?  Should they give the buyer the face value of the outstanding gift cards? This actually is a rare occurrence in IBA facilitated M&A transactions, because as noted previously 100% of gift cards sold are never redeemed at a business.  The more accurate the seller’s knowledge and documentation related to redemption rates the better the potential outcome in negotiations to resolve this trailing liability issue.

It is at this point that the knowledge, experience, and skill of the business broker facilitating the deal will pay dividends for their client.  The first step is to quantify the liability.  The next step is to determine how to address the issue in the transaction.  A few of the available options include a price reduction of the business for assumption of the liability, delivery of cash to buy out the liability by the seller to the purchaser, a mechanism for the seller to reimburse the buyer for redemptions over a period of time, offset credits against a seller promissory note, or a variety of other solutions.  The solution to select is commonly a situation specific decision.

Corollary issues in transactions that a professional intermediary should also address with proper legal documentation in negotiations include store credits, loyalty programs, and vendor refunds.  Although similar, these credits are not identical in treatment.  For example, gift card rewards associated with store loyalty can have expiration dates, where gift cards purchased with customer dollars directly cannot.

The most important takeaway on this issue is that there is no replacement for knowledge, experience, and skill in the facilitation of the sale of a business.  It takes many years, significant education, and direct mentorship to achieve long term success as a business broker if the desire is to complete transactions employing best practices offering sage counsel to clients.

If you are interested in selling a retail business (Brick & Mortar or E-Commerce) in 2022, time is of the essence to go to market.  More retail businesses sell from August to October than any other time of the year.  One of the reasons this occurs is that from a cash flow perspective this is frequently prudent strategic planning as a well-timed company acquisition can result in a buyer experiencing two Christmas shopping seasons in less than sixteen months, frontloading capital in the business for operations.  I have yet to find a business owner who does not sleep better with deeper cash reserves in the bank.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family-owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.