Why cashflow is important for travel agents

cashflow important

In this article we will look at why cashflow is important for travel agents.

I usually get asked by travel agents why do they pay so much tax ? And I usually answer that the way to understand the money in and money out of their business is to understand their cashflow.

If there’s one figure you know in your business, I expect it’s your bank balance. And it’s a pretty important one. Have you ever felt puzzled by costly tax bills despite seeing little in your bank account?

Why is cashflow important for travel agents?

I usually get asked: "What can my cashflow tell me about the overall health of my business?"

If you’ve ever wondered why you’re paying so much tax whilst showing zero in the bank account, you’ll find this month’s blog that I wrote eye opening.

But the cashflow forecast alone doesn’t really give you any information about what’s happening in your business. At LAS Accounting, we regularly speak to our clients about their cashflow forecast because it’s such a crucial part of the financial picture. Cashflow hasn’t traditionally been part of the service business owners expect from their accountants, but as technology has changed and we moved out clients to digital accounting, we can analyse  your accounts data and give you even deeper, real time insights into what’s happening in your business.

But why would you need that?

In this article, I’ll share why cashflow is important for travel agents and reveal what cashflow forecasting can really tell you about your business.

What do you mean by Cashflow?

Cashflow is essentially the net amount of cash and cash equivalents moving into and out of your business. It’s a critical indicator of your business’s financial health. Understanding the nuances of your cash flow can help you make informed decisions, predict issues in the future, and run a more financially stable business. Here are some of the insights that your cash flow can provide about the overall health of your business:

1. Operational efficiency

If you have more money in than out, you have positive cash flow. This indicates that your business is generating more money than it is spending. This is often a sign that your business operations are running smoothly and efficiently. Conversely, a negative cash flow might indicate operational challenges, such as high costs, poor inventory management or inefficient processes that could be draining your resources.

2. Financial solvency

If you haven’t got cash, you can’t meet your financial obligations – no matter how profitable you are on paper. A consistent positive cash flow suggests that your business is solvent and can comfortably pay its debts, salaries, and other operational expenses on time. If you find your business frequently struggling to cover these expenses, there’s a problem – and your accountant is a great person to help you with that.

3. Growth potential

This isn’t about how much money you have coming in, it’s about where your money is coming from. Analysing where your cash comes from can tell you a lot about your business’ growth potential. For instance, reinvestment of cash into business activities like marketing, product development or expansion can indicate a strategy geared towards growth. If your cash flow is healthy, you’ll have more flexibility to invest in new opportunities, if it’s not, you won’t.

4. Investor and lender attractiveness

If you’re looking for a loan, investment or even to sell your business in the future, your cash flow is vitally important in making your business attractive to investors and lenders. They often look for businesses with positive cash flow as it suggests a lower risk of investment.

5.Market conditions and consumer demand

Your cash flow can also reflect broader market conditions and demand for your products and services. For example, seasonal variations in cash flow might be normal in your industry but variations out of the norm could indicate a need for better cash management or a need for a change to your business model to accommodate changes in the market.

How can LAS Accounting help?

At LAS Accounting, the reason we care so much about your cashflow is that it shows the long-term viability of your business. Patterns of steady, positive cash flow over a long period are a good indicator that your business model is sustainable. On the other hand, if cash flow problems persist, it might be a sign that you need to make fundamental changes. This is why cashflow is important for travel agents and other travel business owners.

And if you’re anything like our clients, you’d like to have foresight of problems ahead as soon as you possibly can.

We regularly review our clients’ cash flow to equip them with the knowledge to make proactive adjustments when they’re needed. We want your business to be robust and responsive to internal and external pressures. If you’d like to talk more about your cash flow, book a call with me today by getting in touch.

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