As Etsy's CEO pointed out this week, many sellers don't qualify for social safety net programs such as unemployment insurance, disability insurance, or paid leave, making cash flow problems even more dire for small sellers.
Some small businesses are asking customers to support them through these difficult times by purchasing gift cards now for redemption after the coronavirus advisories and lockdowns are over. But it may be difficult for small online sellers to offer gift cards to shoppers.
To help, Kabbage launched an online hub where US small businesses impacted by COVID-19 can begin selling gift certificates even if they haven't been set up to do so in the past.
The landing page on the Kabbage website
explains, "through Kabbage Payments, any business can sign up to sell gift certificates online, and anyone can purchase them to support participating small businesses. Once registered, businesses can send a custom link to their customers."
Note that when you fill out the form, you are creating an account with Kabbage, and there is a payment processing fee when people purchase a gift certificate from you through its program.
We asked how Kabbage ensures people who sign up are real businesses, to which the spokesperson replied, "The hub asks businesses to put in information that helps verify." Because Kabbage isn't making risk assessments as it does for its funding service, there are not strict performance criteria such as minimum revenue or number of years in business. But you need to be a legitimate business and have an EIN. (Remember, companies are required to issue forms 1099-K to the IRS for payment processing.)
We wondered if there were any restrictions on how sellers could use cash from sales of gift cards. Small-business and tax guru Barbara Weltman confirmed sellers have income when they sell the cards when using the cash method of accounting.
Sellers using the accrual method of accounting can do the same, she said, though those sellers may also choose to defer income for cards not redeemed in the year of the sale, but no later than the end of the next year (i.e., a one-year deferral).
Weltman also noted that gift cards are not subject to sales tax. "Sales tax is charged when the cards are redeemed for goods," she said. We suggest you consult her book, "J.K. Lasser's Small Business Taxes 2020: Your Complete Guide to a Better Bottom Line" (visit BigIdeasforSmallBusiness.com
, where you can also sign up for her free newsletter).
The Better Business Bureau also offered tips
on how to support small businesses during coronavirus. Among the advice: take online classes from local businesses. That may spark ideas for sellers who have skills to consider offering online classes of their own.
Some sites like Etsy have the ability to offer digital downloads
, such as downloadable art and sewing or woodworking patterns and templates, which customers may find convenient - and parents may appreciate them if they offer ways to keep their children busy and productive.
As the BBB noted, not everyone has financial resources right now, so it offered some free ways people could support small businesses, such as writing an online review, or liking and sharing on social networking sites. As an online seller, this may be a good time to ask your customers (and trusted colleagues, perhaps) to help support you by telling their friends about your shop.
Let us know if you are finding ways to keep revenue flowing and what you're finding to be your biggest challenges.