How are you using the Financial Data from your Travel Software?

There’s no question every travel company – from travel agency to travel management company (TMC); tour operator to destinationmanagement company (DMC) –has financial statements produced by its travel management software system.  Whether for viewing monthly/annual financial results, meeting shareholder requirements or complying with bank requirements, financial statements are a fixture in the business world.  However, many travel company owners and managers don’t know how to read this financial information; some rely on accountants or advisors to explain the numbers; others just don’t really use the information at all.

Since travel companies use the professional services of accountants and lawyers, why should their owners or managers know to parse and use financial information? After all, they certainly wouldn’t be expected to be knowledgeable about lawsuits or liability. 

There are three good reasons:

• Financial data analysis will reveal a travel company’s health
• Owners/managers have far greater operational knowledge than accountants
• Critical business decisions need more than accurate data – they also require speed

The travel industry is too competitive and changing too quickly for company management to battle information bottlenecks and still expect to succeed and grow. If they must rely on accountants and advisors to walk them through financial statements, then a bottleneck is exactly what they have.

Designing the Use of Financial Data

Running a travel company is already a complex job. Unless using financial information makes that job easier rather than harder, it won’t grow into a long term practice. There are design principles which can guide the use of financial data and help turn it into an effective tool.  

Professional Help: it will take a good accountant or advisor to help you design the type of information you require. Don’t assume it’s the necessarily the same person who’s been filing your taxes. Depending on your travel software system and it may integrate with accounting software, it could also take IT expertise to create customized reports.

Plan: the accountant or advisor you select can’t design information without knowing the company objectives it will be asked to support. Is the company prioritizing growth over profitability? Is it seeking to expand into other types of travel products or services?  A business plan shouldn’t be a distraction or become a time-consuming project. It just needs to capture and articulate company goals and objectives.

Dashboard: Financial statements are often referred to as a company’s “report card”. To extend the analogy, a financial dashboard is much closer to a quiz. It “scores” company performance more frequently; typically weekly as opposed to monthly, and focuses on smaller scope of reporting metrics – often less than ten key indicators. Weekly reporting supports agile management decision-making; a tight grouping of metrics allows for an efficient “at a glance” footprint on management time.   

Financial Data Priorities

Companies have their own unique blend of goals and objectives which preclude dashboards from following a one-size-fits-all approach. However, there are some financial data elements which touch critical areas common to many enterprises - such as cash flow, profitability and sales – are likely to be considered for a dashboard by accountants and advisors. These elements include:

Working Capital:  a travel company must have sufficient liquidity to complete the lifecycle of goods and services from purchase to revenue and ultimately cash. This cycle is generally not self-funding and must be supported by the financial strength of the company. For example, if room inventory requires payment in 30 days and sale-to-cash takes 45 days, a travel company must be able to cover at least a 15 day shortfall.  Management must be able to foresee working capital issues well before trade credit is affected.

Projected Profit or Loss: the shortest period of time covered by a financial statement is generally a month. Since preparing the statement can take ten days or more, the actual span of time between updated information may be closer to six weeks – too long for some decisions. A dashboard can be designed to provide less accurate but timelier interim information: for example, every two weeks.  An experienced accountant or advisor is needed to model this data, because it requires several inputs; such as expense estimations and proration; break-even calculations; and company-specific factors such as seasonality.

Projected Cash Flow: this information answers the critical question – are company operations generating enough cash to pay near-term bills and obligations?  Unlike working capital, which measures the ability to pay suppliers on time, projected cash flow covers all other bills (payroll, rent, insurance, etc.) and obligations (promissory notes, taxes, etc.).  Of course, there are non-operational ways to increase company cash – such as bank loans, asset sales or investors – but these options typically require advance planning and notice. Projected cash flow information is essential for management to have that time.

Profit and Operating Margins: this data answers two questions for company management – how profitable are the products/services that have been sold; and, how profitable is the company after all operating expenses have been deducted from that profit? A dashboard should provide an easily understood contrast between expected margins and interim results. If the difference is negative and significant, urgent and rapid decisions may be required – and only a dashboard can provide this immediacy.   

Sales Composition: this data breaks down the company’s revenue stream so management can see the composition of sales.  As with profit and operation margins, the dashboard should clearly show any difference between marketing expectations for revenue streams and interim results. Without insight into sales composition, it is difficult to determine why overall sales volume is not producing the expected level of profitability. Any decision affecting sales and profitability must be made as quickly as possible and with the best available information. In such situations, a well-designed dashboard is invaluable.

Dashboards aren’t substitutes for good financial statements. Rather, the two serve complementary roles. Dashboards provide timely information whose accuracy is always flawed by estimations and proration. Financial statements give management an accurate record of financial performance too slowly for urgent decisions. But, at the same time, they also provide the means to analyze and improve dashboard outcomes  

A software system capable of flexible and customized financial reporting is ideal for the design, production and enhancement of effective financial information dashboards.  Such travel finance reporting software, providing strong support of management decision-making, is a wise travel technology investment.