Snow has started to accumulate in the mountains of the Pacific Northwest. The presence of snow in the passes and the ability to see our breath in the morning are early signs that the holiday season is just around the corner. The holiday season frequently determines whether it was a good year as an entrepreneur or not in the retail sector. One methodology of accumulating working capital to support business operations in Q1 for retail & service businesses is to sell gift cards or gift certificates. Gift cards and gift certificates allow for the collection of money today in exchange for the delivery of products and services in the future. They are also a wonderful solution for giving gifts to employees or difficult to shop for people on your list. An added bonus for a business owner is that a percentage will be lost, partially used, or not used at all resulting in enhanced profit for a business. Starbucks, the king of gift cards, estimates that it has approximately $1.8 billion of purchased, but unused gift cards ( https://www.marketwatch.com/story/the-bank-of-starbucks-coffee-retailer-has-1-77-billion-in-unredeemed-gift-cards-138df8f5). I think all would agree that Starbucks made an intelligent decision to sell gift cards at its locations.
Selling gift cards is all well and good, if an entrepreneur is going to own the business in the next year. The complication 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:
https://apps.leg.wa.gov/rcw/default.aspx?cite=19.240&full=true
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 to avoid being economically damaged when a customer returns with a gift card post acquisition when they own the merchandise, are 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?
Let’s pause and think about the seller in the business sale transaction, what is fair from their perspective? Should they give the buyer the face value of all 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 over a period of time based on future redemption, 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 take away 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 “win-win” transactions employing best practices offering sage counsel to clients.
If you are interested in selling a retail business (Brick & Mortar or E-Commerce) in 2026, IBA’s recommendation is that you roll up your sleeves, go to work, and produce the best possible Q4 revenue & profit scenario you can as a business owner. Holiday season revenues and profits have the ability to positively impact the market value of a privately held company or family business three ways. #1, a strong Q4 will demonstrate the health and vitality of the business model in the present economic environment. #2, Growth in Q4 revenue in 2025 over 2024, will enhance the value of the business, as revenue trends are a component in the creation of an appropriate multiple (https://ibainc.com/blog/gregory-kovsky/the-fundamentals-of-business-valuation-ebitda-times-a-multiple/). #3, a strong finish to a year will improve the data included in the 2025 corporate tax return which will be filed in 2026. Tax returns filed with the IRS are the most important documents in determining business value and obtaining financing to support a purchase & sale.
IBA has sold more retail businesses (https://ibainc.com/industries-served/retail/) than any other business brokerage firm serving Washington & Oregon. Our resume of successfully completed transactions includes Brick & Mortar locations such as Larsen’s Bakery, home of everyone’s favorite holiday pastry in Seattle, the Kringle (https://www.seattletimes.com/life/food-drink/all-the-kringle-and-smorkage-too-larsens-danish-bakery-is-still-going-after-almost-half-a-century/), Ravenna Gardens (https://ibainc.com/blog/nesha-ruther/the-story-of-gillian-mathews-ravenna-gardens/), The Quilting Bee in Spokane (https://quiltingbeespokane.com/), Fisherman’s Marine and Outdoor in Portland (https://fishermans-marine.com/), Kitchen & Company (https://ibainc.com/blog/nesha-ruther/the-story-of-harry-caraco-kitchen-company/), Black Pine Spas (https://ibainc.com/blog/nesha-ruther/the-story-of-mike-nekahi-khasha-mekanik-black-pine-spas/), and E-Commerce businesses selling everything from Jewelry Boxes to Metal Detectors to Apparel for the Elderly and Disabled (https://www.buckandbuck.com/) to live insects for feeding reptile and amphibian pets.
If a sale of a business is desired in 2026, IBA would welcome the opportunity to visit your location, learn about your business model, and provide an overview of our client services. All conversations with IBA are held in strict confidence.
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”.