The latest challenge for Travel Weekly ‘business makeover’ winners, Yvonne and Peter Holmes, was to crunch the numbers and set targets that would get their travel agency, Classic Travel, to where they wanted it to be over the next five to 10 years.
MacIntyre Hudson principal Andrew Burnham has taken the business through an initial meeting and created a strategic action plan in the past few weeks.
“The strategic action plan gave us the opportunity to conduct a comprehensive review of the business, and to define the actions Yvonne and Peter need to take,” Burnham said.
“We then had to transform those words into numbers. Every business is measured by its financial performance. We needed to look at the mechanics of how to achieve growth, and express that in numeric terms.”
According to Burnham, although all businesses plan to some extent, all too often that process is informal and ill-defined.
“At a recent Association of Cruise Experts conference, delegates were asked who actually had a business plan. Only 10% did,” Burnham said.
Peter said that much of their business planning was done informally. “We are a small business, so each week and month we know what we need to achieve. We know when we’ve had a rough week without looking at the figures.”
The couple has attempted to draw up long-term plans in the past, but not in such a structured way as Burnham demonstrated.
By the end of the day, they had learnt the value of having a long-term view of the business. “If you fail to plan, you plan to fail,” Burnham said.
Peter added: “Most of the things from the meeting underlined what we already knew. If something had come out of the meeting that was a complete shock, then we would have had to question our ability to run the business.
“The meeting crystallised what we know about the business, and highlighted some of the things we didn’t want to face,” Peter said.
“We found it very motivational. It was really helpful to have someone objective to say: ‘Look, these are the facts’.”
Your forecasts need to cover at least the next three years. Your first 12-month forecast needs to contain the most detail. This should include:
- Cash flow statements: your cash balance and monthly cash flow patterns for the first 12-18 months.
- Profit and loss forecast: this will show the profit you expect based on projected sales and costs of providing your services. It should also include overheads.
- Sales forecast.
- Risk analysis.
- Smart budget: this will help you to regularly review your expenses and make financially beneficial decisions.
- Remember to review your expenditure – both fixed and variable costs.
- Look at your competitors and how they are pricing their products – particularly during the recession. Think about your customers’ willingness and ability to pay for the products you are offering, or plan to offer in the future.
- Consumers have become price conscious and it is easy to discount or to go for low-margin products to maintain turnover. Remember to keep profit in mind. While keeping prices low may maintain a higher turnover, the additional profit from higher margins can often outweigh loss of turnover. “Don’t forget the adage: turnover is vanity, but profit is sanity,” said Burnham.