Did you recently open your own travel agency? First of all, congratulations! Making the decision to open your own business can be new and exciting.
Before you get too caught up in the day-to-day tasks, it’s important that you set your business up for success through transparency in your finances. Building a strong financial future for your travel agency can impact your personal consumer credit, depending on your business type. This makes it important to set yourself up for success right away.
One way to properly manage your travel agency finances is to create a budget. In this article, we will cover the steps to create a budget, common travel industry expenses, and best practices for tracking your income and expenses throughout the year.
How to Create a Budget
Creating a budget involves predicting the cash flow of your travel agency for a specified period. Budgets are commonly generated using monthly income and monthly expenses. It can be tricky to predict the income of your travel agency for the next six months. Once you determine the certain period you will track, follow these steps:
- Identify Total Income – Although it can be difficult to predict future income, you should try and be as accurate as possible. What customers are expected to pay you in the next month? Keep in mind that deferred income shouldn’t be included in your budget.
- List All Expenses – You will have two main categories of expenses: fixed expenses and variable expenses. Fixed expenses are amounts that stay the same each month, such as office rent and health insurance. Variable expenses change each period, such as your credit card bill, education, and other bills. Be sure you factor in unexpected expenses to give you a financial cushion.
- Allocate Funds Based on Priorities – Is your goal to save money? How about building up your emergency fund? If your goal is to generate extra money, you want to be sure your budget aligns with your savings goals. Budgeting can often involve multiple different long term financial goals, such as saving for retirement, but when just starting out, you want to focus on the most pressing goals. Additionally, make sure you have realistic goals. You shouldn’t try to increase profit by 50% in a single month.
- Calculate Total Budget and Adjust – Next, you want to calculate your total budget and adjust throughout the month. Keeping track of your budget throughout the month helps your business stay on track and make informed decisions with the money you are spending and receiving.
- Review Your Budget – After each budget period, you should review your progress. We will discuss exactly how to review your budget in more detail next.
Budget Items Specific to Travel Agents
Travel agencies will incur unique expenses and have fluctuating revenue, making it important to pay attention close attention to your cash flow management. Here are some expenses to watch out for when you are creating a budget:
- Travel Agent Software Subscriptions – Each month, you most likely spend money on numerous software subscriptions, such as booking software programs and personal finance apps.
- Host Agency or Licensing Fees – These required business fees are another bill that you have to factor into your budget.
- Marketing and Advertising for Travel Promotions – Although you might want to save money on marketing and advertising, it can help you grow your agency by generating more leads. Allocating more money in your budget to this category allows you to stay on track with your spending plan.
- Familiarization Trips – How can you suggest certain places to clients if you’ve never experienced them first-hand? Many travel agencies spend money on personal trips to test out resorts, transportation, and restaurants. Paying these expenses is a necessary part of running a successful business, but you need to be sure you budget for them.
- Professional Development – Spending money on professional development and association memberships can set you apart from other travel agencies.
- Taxes – If you make quarterly estimates, you want to include these expenses in your budget. Your after tax income can drastically vary if you make tax payments during the budget period.
These are just a few of the items that you might encounter. Utilizing accounting software can help you track these expenses and more, with little to no work needed on your end with the use of automation. For our software recommendations, reach out to a team member today.
Comparing Your Budget Against Actual Expenses
Budgets are only successful if you compare your projections to your actual expenses. Shortly after the end of the budget period, generate financial statements to analyze any differences. This includes generating the income statement, cash flow statement, and balance sheet. However, you only use the income statement to compare expected to actual results. The other statements are useful for getting an overview of the financial health of your travel agency.
How close was your budget to what actually occurred? Was cash flow lower? Did you have more living expenses or paid other money that you weren’t planning on? Diving into the deviations can help you with tracking expenses more accurately going into the next budget period.
Also, revisit your financial goals during the review process. Are you still trying to save money for an emergency fund? How about improving the attractiveness of your financial statements to potential lenders? Tweaking your goals each month helps you reach your long term goals.
The review process can also give you insights into your customers and expenses. Are customers frequently changing their reservation after they have booked? Should you implement change fees? How about if you are spending too much money on a credit card and you need to seek alternative debt financing? Knowing these items gives you the ability to effectively plan going into the next period to improve your overall financial situation.
Whether you are trying to save money for an emergency fund or ensure you have enough money to pay bills each month, a budget is an essential tool that contributes to the long term success of your agency.
Starting off on the right foot puts more money back into your pocket and minimizes surprises when you review your financial statements. For tailored solutions to help you make strategic decisions surrounding how much money you are saving and spending, reach out to one of our team members today.