Common Financial Mistakes Travel Agencies Make and How to Avoid Them
by Karen Shaw
Starting or operating a business in the travel industry can be a daunting prospect, to say the least. This is a near-trillion-pound global industry, and one which rests on a great deal of complicated variables besides; while the potential for profit is huge, the margins are often low – and the risk of failure far greater than in other adjacent industries.
As such, travel agencies are uniquely vulnerable to the same mistakes that many other start-ups are able to make with less impactful consequences.
What are the five most common financial mistakes a travel agency can make, and how can they be avoided?
1. Poor Cash Flow Management
The first phenomenon is not one unique to the travel industry; indeed, it is one of the most common pitfalls in any new business and one of the leading reasons for premature business closure. Cash flow describes the movement of money in and out of business – not profit, but the literal receipt and removal of money from business accounts in a given period.
Negative cash flow means more money has left the business than entered it in a given period. This might be due to investment, whether in new business assets or in stocks and shares, but is nonetheless an ill omen to any investors. This is in no small part due to the exposure of a business with dwindling liquidity to economic difficulties. This can be, in large part, avoided by reducing any generous repayment terms negotiated with business clients, allowing an influx of cash in the short term.
2. Overlooking Tax Obligations
Tax is the next-biggest concern for businesses of any stripe, and another major point of potential friction. Travel agencies, though, are especially exposed with respect to tax obligations, particularly where they are operating internationally. Tax obligations will differ from country to country, and regional profits will need to be handled with respect to localised tax law – as well as the movement of money across borders. This is no simple task, but one that can be entrusted to specialist advisors for reduced risk of calculation errors and financial penalties.
3. Inadequate Budgeting for Marketing
Travel agencies are constantly grappling with visibility, whether on a B2B or B2C level. As such, there can be no let-up in marketing or outreach efforts; otherwise, sustaining deals with airlines and accommodation conglomerates can quickly become unsustainable. A poor marketing budget is a swift way to kill a travel business’s viability, but the answer isn’t to apportion significant funds to adverts. Rather, a considered approach to building a supported, robust marketing department should be a priority.
4. Failing to Maintain Profit Margins
Finally, and crucially, travel agencies often operate on razor-thin profit margins. Offering competitive deals for travel means working hard to undercut larger competitors where possible, something that can inadvertently create a ‘race to the bottom’. Doing this only reduces your profit potential and, hence, the longevity of your business. Rather than cutting profits, a travel agency would benefit from investing in customer service to provide value in ways other than affordability.
