Time is flying, and we’re already more than halfway through 2023. Now is the perfect time to start reviewing your agency’s financials.
It’s important to understand how to set up your budget, to account for your sales and commissions and to manage your cash flow. In doing so, it is critical that you seek the advice of professionals to ensure you are following all accounting rules.
The Travel Institute’s Travel Agency Finances online course—included in the Premium Library or as a standalone resource—will give you a practical, in-depth understanding of agency finances, that you can put into action immediately. Below is an excerpt from this powerful resource:
The travel agency business is unique regarding the moment when revenue is earned. You can have sales, but no revenue. A successful business will continue to generate more and more cash, but its current bank account balance may not necessarily reflect that success.
In many cases, your agency won’t earn income until the travel takes place and the supplier pays the commission, or at least until the travelers are past their cancellation period. Similarly, your agency may have very high sales one month but finds it is running out of cash in another.
A quarterly budget will help you map out these patterns of cash inflows and outflows and help identify times of the year when you need to either stimulate sales or modify expenses.
How can you boost your cash flow? Here are some suggestions:
Sell more. Higher sales will lead to better cash flow. That is easier said than done, but you can run special programs to generate sales to provide cash when you need it. When cash flow is typically poor, you might consider running cruise nights or other creative programs with preferred vendors. Try to resist offering fee-waiver promotions because your clients soon will come to expect that and may change the timing of their purchases to take advantage of such discounting.
Reduce accounts receivable. Accounts receivable collected sooner are better than those collected later. If you do have some receivables, try to minimize the amount of time you give clients to settle accounts. Alternatively, as market conditions permit, consider charging interest for invoices older than 30 days.
Delay payables. An account payable on the date due is better than one paid on the date received. Take the maximum amount of time (within reason) to pay bills, especially during periods of low cash flow. Make supplier payments on time, but try to extend terms on other expenses where possible, such as advertising, professional fees, etc. You may be able to negotiate longer terms with some vendors during certain times of the year, but make sure when you stretch payments out that you are not incurring late fees.
Borrow. Based on your cash requirement forecasts, you may identify times of the year when you will need extra cash. Borrowing may be an option. To meet your temporary needs, ask your bank about business lines of credit. Borrowing should be used only as a last resort because continued reliance on financing may signal to you, or your creditors, that the business is not generating enough cash from its operations to cover its expenses.
Cut expenses. If you’ve mapped cash inflows and outflows, you’ll know when you need to minimize controllable expenses. When you expect cash to be tight, offer employees part-time work or unpaid leaves of absence. Cut down on expenses, such as office supplies or promotions where you must pay fees up front.
Reevaluate your sales mix and business model. An agency should not be all things to all people. A successful agency will find an appropriate niche in the marketplace and fill it. That may mean focusing on a geographic or travel specialty and selecting a list of preferred vendors on whom to focus your sales efforts.
Ensure that the agency explores all high-margin, valued-added products available. No leisure sale is complete without offering travel insurance and suggesting upgrades.
Charge for your services. In the same way that other professionals, such as attorneys, charge for all expenses related to a case, travel professionals must pass along appropriate expenses to clients. You provide information to clients that otherwise would cost them time, money, or both. And, just as paralegals who do research for an attorney charge an hourly rate for their professional services, so should travel agents, particularly those holding CTA®, CTC®, or CTIE® certifications. Professional fees certainly will add to cash flow. There are many types of fee structures you can follow. Make sure you understand the Seller of Travel Laws for your particular state–if any–before you start charging professional fees. Do your research and devise a structure that supports your business strategy. The Travel Institute’s Premium Access Library offers several resources on a service fee structure, including suggested ideas on what to charge, how to set it up, and how to discuss it with clients.
Understanding your organization’s finances—and how to enhance them—is a critical contributor to the success of your business. Get the knowledge you need with the Travel Agency Finances course.