Eric&Lisa wrote:
lots2seeinmyrv wrote:
Someone posted on FB to support your local restaurants by buying Gift Certificates, to keep revenue going, that you can use later.
Great idea.
Pretty sure that is not how Gift Certificates work from an accounting standpoint. The company needs to hold those funds 'on the books' and cannot spend them on expenses until they are redeemed. If I buy a $20 gift certificate, the accountant credits $20 to the bank account. But in issuing the GC, they also have to enter a debit for "We owe Eric $20 worth of cheeseburgers". Buying GC's does not go in a restaurant's nightly income on their balance sheet.
The only way this helps is you are promising to do business with them when they re-open. And if they fold and don't re-open, guess where Gift Certificates are in the 'who we owe money to' bankruptcy list.
My guess...
Some restaurants which are already hurting will be impacted. COVID is just putting them over the edge, it really could have been anything else. But I'll bet a lot of them innovate with special take-out menus, delivery, etc. I suspect some of them may take the opportunity to do some deferred maintenance - fresh paint, clean carpets, etc. Stuff that would normally disrupt operations and close all/some of the business may get done.
As far as I can tell, this is just an order to close restaurants/bars to being open for dining operations. There is nothing telling restaurant owners they can't have their wait-staff show up at work and do maintenance/deep cleaning (ie: earning a paycheck). If the kitchen staff is busy filling take-out orders, then things may be a little lean for everyone involved, but it is not a complete lights-out. This is not a situation where the government is closing all restaurants and ordering the employees to be permanently laid off.
-Eric
Cash flow and revenue recognition are two different things. Yes, the company can use the funds. Yes, it will not be recognized as revenue on the P&L until it is redeemed. So purchasing gift cards does help cash flow. The risk as a purchaser is will the company be in business in the future to redeem.