If you want to plan your finances for the year, you need to understand how your business has performed over the past year.
This means having good management information systems that provide detailed trading information in addition to the business profit and loss, and cash flows.
The sales information should identify what is selling well, how big the margins are and how well reservations staff are performing against sales targets.
You should also critically review your costs over the past year – fixed (such as staff and rent) and variable (such as advertising and IT).
Take the long-term view
While planning for the next 12 months is most important, you should have a clear idea where you want to be in three years’ time. A business plan that contains strategic objectives to develop the business and guide your next steps should be in place.
Be honest with yourself
It is essential to have a realistic sales target. Be honest about the amount of the actual sales enquiries and conversions you get, and don’t assume that business will be maintained at the levels achieved over recent years.
Which customers spend the most or lead to the greatest returns on a booking? All this information will help you decide on how best to drive your business to achieve higher-margin sales. Are your reservations staff contributing effectively towards the business targets and profitability?
Wheel and deal
Look at your costs and see if you can make cuts that don’t impact on the integrity of your business. For example:
- What financial protection do you have in place – are you over or under covered?
- Are you getting the best deal from your consortium?
- Are you paying rent quarterly in advance? Could you switch to monthly payments?
- Could you trim your advertising or IT costs by shopping around?
Keep one step ahead of your customers and suppliers
Think about how your creditors and debtors might act. Suppliers might reduce credit as they look to strengthen their own financial position.
Will they start demanding higher deposits? Ensure you match your sales collection and supplier settlement arrangements.
Stay on top of current affairs
Read the newspapers and keep up to date with what’s happening in the wider economy. It’s important you are prepared for a potential new government this year and the decisions it might make that could impact on your bottom line.
For example, what is expected to happen with taxation levels, public sector expenditure cuts, interest rates, and bank lending to small businesses? What is the perception of the travel industry within the banking system and how will this impact on an agency – will it be harder to borrow?
Communicate your strategy to staff
Are they selling the right holidays to the right customers that make the agency maximum profit?
Ensure that staff understand your expectations. Consider building performance incentives for staff to help drive business efficiencies and profitability.
Andrew Burnham explains the political and economic developments he predicts will affect the travel sector this year.
“It is very likely that whoever wins the election will implement severe public sector cuts, which will lead to increased unemployment. It is also likely that these changes will come later in the year and into 2011.
The situation is more difficult to predict with interest rates as they are affected by Europe and the US, although economic commentators are pencilling in rate increases by the autumn with the Bank of England base rate expected to double by the middle of next year to 3%.
This will feed through into increased mortgage lending rates and certainly impact on consumer spending power as will expected VAT and income tax increases.
Even if an increase in savings rates eases the spending of the older age groups, this positive impact is likely to be outweighed by all of the above.”