At Inspa Corp., a fast-growing Seattle day-spa chain, CEO Colleen Stone smooths out the wrinkles in her cash flow by borrowing from her customers. When retail gift cards first hit the scene a few years ago, Stone, 49, realized their appeal for her spa clients. Previously, paper gift certificates made up approximately 25 percent of sales and were awkward to issue and track. Now, prepaid gift cards account for more than 25 percent of InSpa's incoming cash flow.
And since gift cards often go unredeemed for up to 12 months, InSpa can use that cash in the interim--like an interest-free loan from next year's customers.
One warning: Gift cards create a short-term liability on your balance sheet, which may make bankers nervous about extending additional credit. But the overall effect has been positive for InSpa--the 2004 holiday season set new records for gift card sales. Says Stone, "We plow all that cash flow right back into opening new stores."
This story appears in the April 2005 issue of Entrepreneur. Subscribe »
