KEEP THE CASH FLOWING
CASH flow is the lifeblood of any business. If your travel agency runs out of cash and you can’t pay suppliers, you will soon end up with nothing to sell. From there it’s a quick, vicious dive into insolvency. A good business needs a positive cash flow where the amount of money coming in each month at least matches the amount going out. Many agents are commenting on slower sales since the drop in consumer confidence and it’s times like these when cash flow problems can emerge. Cash flow needs to be monitored at every stage of business growth and when your business is being affected by economic conditions or other factors, you need to keep an even closer watch on your finances. Here are 10 tips to help you monitor cash flow.
1. Set up a forecasting system
A cash flow forecast is a simple tool that will pinpoint obvious gaps in your finances and allow you to take steps to minimise the effects. It only takes an hour or two to set up and a few minutes to update each week. Enter every expense and update your planner regularly to form a good habit. This information will be invaluable in running your business.
Many small business owners hire a bookkeeper, but that’s not enough. Don’t expect them to tell you everything you need to know. Be on top of the financial patterns of your own business and use budget forecasts to anticipate problems, review performance and find reasons for variances.
The whole point of monitoring cash flow is to catch small problems before they turn into big ones. If forward bookings are poor, ask yourself what you could be doing to stimulate sales. Are you communicating well with your existing customers? It’s much easier to tackle issues in their early stages, so use forecasting and budget control as an immediate call to action.
4. Focus on conversion and yield
Lead conversion is often neglected when times are good. Make sure all inquiries are followed up and be wary of cutting prices and affecting yield. Simply chasing cash flow at any cost will hurt your business in either the short or long term (or both).
5. Get a bigger deposit
While you do have to collect a deposit to cover suppliers, it’s worth collecting a little more to cover the time you have invested in preparing the customer’s travel arrangements. This may not help cash flow immediately because the deposit will be held in trust until the customer’s final payment, but you won’t be chasing money if the customer cancels.
6. Bring forward customer payments
Change your payment terms and ask for final payment a few weeks earlier than suppliers suggest. Your commissions are sitting in the trust account until you receive the final payment, so this will free up your portion of cash flow quicker. However, be wary of exchange rate fluctuations and pay suppliers immediately so you don’t carry the risk.
Make sure all existing customer files are accurate. Their money will contribute to your cash flow rather than sitting in the trust account.
8. Chase your commissions
Follow up with hotel and CCCF commissions; they should be in your account rather than theirs. If cash flow is tight, this is a job worth assigning to a consultant for a specified period each week.
9. Lease instead of purchase
Leasing does cost more in the long run, but buying on instalment means less up front costs and more cash in your hand.
10. Communicate
Keep everyone up-to-date including your bank, suppliers and business advisers. If you think you’ll need help managing a looming problem, get in fast. Early proactive solutions are far easier to deal with than drastic lastminute measures.