A balance sheet is a financial statement that provides a snapshot of a company’s financial position for a specific reporting period. It shows the assets, liabilities, and shareholders equity of the business.
A balance sheet report is important for travel agency owners because it can help them understand their business’s overall health, make strategic decisions about financing or expansion, and provide financial information to stakeholders.
The balance sheet equation, also known as the basic accounting equation, outlines that a company’s total assets must equal total liabilities plus shareholder equity.
What Items are Included in a Balance Sheet?
There are three major categories found on a company’s balance sheet: assets, liabilities, and shareholders equity. Let’s go into more detail about each section.
Assets
A company’s total assets can be broken down into current assets and non current assets. Your company’s assets represent something your business owns.
Current assets are liquid items that can easily be converted to cash. Common examples include your business bank account and cash equivalents, marketable securities, accounts receivable or commission receivable, and any prepaid expenses.
Non current assets, also known as long term assets, include non liquid items like fixed assets, intangible assets, and intellectual property.
Liabilities
Like your company’s assets, liabilities are broken down into current liabilities and non current liabilities. Current liabilities are due within twelve months and include short term financial obligations and accounts payable.
Non current liabilities are due after twelve months and may include bank loans, deferred revenue, long term debt, bonds payable, and other long term liabilities and items your business owes.
Shareholders Equity
Shareholders equity, known as owner’s equity, includes your net income and retained earnings. This category gives you a clear picture of your company’s financial health performance since your travel agency began. Total shareholders equity might also include any treasury stock and other comprehensive income.
Why is a Balance Sheet Important for Travel Agency Owners?
Here are a few key reasons why a balance sheet report is one of the most important financial statements for travel agency owners:
Assess Liquidity
A balance sheet report shows how much cash and other liquid assets a business has on hand, which can help travel agency owners understand their liquidity and make informed decisions about managing cash flow.
One of the most common balance sheet analysis tools compares your business’s assets to your company’s liabilities to understand if you can meet upcoming debt obligations. Knowing this can tell you if you should seek other funding methods if you don’t have any commission revenue in the pipeline.
Understand Debt Levels
A balance sheet report also shows the amount of debt a business has, which can help travel agency owners understand their level of leverage and make informed decisions about borrowing or paying off debt.
If you notice you have a lot of long term debt, you can implement a budget to start paying down these amounts.
Evaluate Solvency
The balance sheet also shows the difference between assets and liabilities, which is known as owner’s equity. This can help travel agency owners understand the company’s solvency and ability to pay off debts.
One metric that you should calculate is the debt to equity ratio which analyzes your debt burden to your company’s past performance.
Identify Assets
The balance sheet report will show the assets the company owns. This can be helpful for travel agency owners to identify the resources they have available to them, like cash, investments, and other resources, which can be used to grow the business.
Provide Financial Information to Stakeholders
A balance sheet report is also a key document for providing financial information to stakeholders, such as investors, lenders, or partners, which will help them understand the financial health of your business.
Creating a Balance Sheet
It is important to note that the balance sheet is a snapshot of a company’s financial position at a specific point in time, so it should be reviewed in conjunction with other financial reports such as the income statement and cash flow statement, to get a complete picture of the financial health of the business.
Consulting with an accountant will ensure that you are getting the most accurate and useful information from this report. Nevertheless, even if you don’t use accounting software, you should still put together basic balance sheet reports that outline your business assets, liabilities and equity.
You can find sample balance sheet templates online to use as a guideline. Start by compiling the total assets category by locating any bank accounts, commission receivable, and fixed assets.
Then, look for your total liabilities. Current debt payments will be the ones due within the next twelve months while long term liabilities will be anything over one year. Be sure you separate these items out to get a clear picture of your company’s finances.
Finally, you will need to calculate shareholders equity. This will be easier if you are the sole business owner. Remember if you take money out of your travel agency business, those transactions are known as distributions.
Summary
The balance sheet of your company is crucial to maintain to track the overall financial health of your business. This statement remains one of the three core financial statements that you can benefit from calculating on a quarterly or monthly basis.
Balance sheets for travel agencies can significantly differ from other businesses, making it important to reach out to an accountant with any questions.
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