Financial planning for 2017 – a tour operator’s guide

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

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Running a travel company, you’ll be no stranger to the challenges posed by cash flow. On top of fluctuating seasonal demand and shifting holiday trends, you also have macroeconomic factors such as Brexit to account for when trying to budget for the upcoming year. Below we share a few tips as to how you can better structure and manage your finances to ensure your travel company is running as efficiently as possible.

Deciding on a budget and costs to consider

Firstly, you need to decide on a budget for the year. This needs to be realistic and should follow a detailed analysis of your company’s performance. You need to consider what the business earned last year, your estimated projection, and the gross margin on sales you need to come out at the end of the year in profit.

It’s absolutely vital that all costs are accounted for. Make sure none of the following are overlooked:

Operating costs – These include fixed costs such as your rent, employee salaries, insurance and any equipment you might use. You also need to consider variable costs – think maintenance, heating, fees for booking accommodation and airline costs.

Marketing costs – If demand for your services is consistently high, you may think you can increase your profit margin by cutting down on this overhead. However, more often than not, it is a necessary expense. Remember, decisions over marketing costs should always follow a close examination of the market itself, including your competitors’ performance.

Distribution network costs – How much money each month is going towards the travel agents promoting and selling your services? Splitting your booking channels with an expert distribution channel manager could boost your bookings whilst minimising the costs of managing your distribution network on your own.

Setting a pricing strategy

Working in a variable market, you’ll want to ensure the fees you are charging are equally flexible to guarantee they remain profitable, but not overblown. Key to this is choosing the right pricing strategy.

Seasonal pricing should look further than simply ‘high’ and ‘low’ season. Assess demand over recent years to determine whether your prices could benefit from further changes throughout the year. Remember Brexit has changed the rules. Exchange rates have made overseas travel more costly, and will affect holiday plans.

If you have varying demand for your services depending on what day of the week it is, you might want to increase fees on popular days. This can benefit your company in two ways; profits on your most popular days are likely to increase, whilst customers will also be eager to take advantage of the deals available on quiet days. The same can be done depending on what time of the day it is.

Preparing financial reports

If your travel business isn’t yielding the returns you were anticipating, you’ll at least want to find out early so that you can make amends. There are several reports that you can prepare throughout the year to help keep a close eye on your company’s performance, although you’re always advised to leave this to a qualified accountant with ATOL certification.

Monthly cash flow projection
A monthly cash flow projection measures your available budget and the customer payments you are due to receive against your expenses, including predicted overhead costs and any loan repayments. This ensures you have a comprehensive overview of your finances throughout the year.

Budget vs. actual
This report compares your annual budget with your actual earnings and expenses, enabling you to see whether you overestimated, underestimated or got your budget just right. Again it is recommended that this is prepared once every month.

Weekly cash requirement report
Always looking ahead, a weekly cash requirement report shows your company cash balance and assesses the customer payments expected to be received over the next few weeks, revealing the total cash you will have available to spend prior to vendor payments and expenses. Preparing this report helps to flag up any problems before it’s too late, meaning you can manage your budget far better.

Make sure your accountant is ATOL certified and understands your goals and your industry.

At Hillier Hopkins, we’re in tune with the needs of your tour operator business, and we have the ATOL certification (ARA) from the Civil Aviation Authority (CAA) so are also able to prepare your Annual ATOL Reports. For a non-obligatory consultation with ​our ARA accountant Jonathan Franks, or for advice on aspects of your company’s financial management, get in touch now. We’d be more than happy to help.