When it comes to running a travel business, having a solid cash flow is vital. However, poor cash flow is one of the top reasons that travel businesses shut down.
What are the basics?
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 leisure or corporate travel enterprise:
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 operations are running smoothly and efficiently. Conversely, a negative cash flow might indicate operational challenges.
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. 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.
Are there any challenges?
Yes. In today’s digital age, the importance of digital marketing in the travel industry cannot be overstated. Consumers heavily rely on digital channels to plan and book their travel experiences. However, acquiring customers through digital platforms can often come at a significant cost. Many travel agency owners have described this as ‘cash-burning’.
Travel companies often need to make advance payments to vendors or service providers for bookings, reservations, and other related expenses. These payments are made before customers have made full payments for their travel services. Managing these upfront costs can pose a challenge for businesses, affecting their cash flow and financial stability.
How to Improve and Maintain Cash Flow?
Most business owners see growth as the solution to a cash flow management problem. That’s why they often achieve their goal of growing the business only to find they have increased their cash flow problems in the process. Plan for growth and investment so they that there are no surprises down the road. Here are 5 practical areas to consider in order to better manage cash flow.
- Proactive Collecting of Receivables
- Tighten Up Credit Requirements in Corporate Travel Bookings
- Increase Sales beyond current levels
- Pricing Discounts for Early Payment
- Securing Short-Term Loans
Every business must have an effective cash flow system in order for their business to be successful. Cash flow is the single most important business issues for SME’s and the most common reason given for businesses who run into financial difficulties. In most cases cash flow can be improved in most situations provided the situation hasn’t been allowed to get too far out of control.
Portway Systems offers a comprehensive Accounting & Finance software for businesses in the travel industry, enabling you to overcome challenges and optimise operations.
About Portway Systems:
Portway Systems is a fast-growing travel technology company that powers the global travel industry, offering a comprehensive suite of products including CRM, Mid & Back-Office, Reservations, ERP, and Reporting technology. Headquartered in Birmingham, United Kingdom, Portway Systems serves customers in more than 30 countries around the world with regional offices in North America and Asia. For more information visit https://portwaysystems.com/
