Travel agencies provide countless people with the opportunity for amazing, once-in-a-lifetime experiences. Owners and tour operators are experts in organizing incredible vacations, but may be less familiar with the financial side of the business, including the accounting process. As it is a crucial part of running a business, let’s dive deeper into how you can manage your financial reports more efficiently and strengthen your decision-making due to accurate numbers.
What is travel agency accounting, and why does it matter?
Accounting is the system of recording, organizing, and overseeing a business’s economic transactions. In tourism, accounting and bookkeeping allow travel agencies to oversee various financial operations, including selling travel packages, booking hotels, and managing travel expenses. To illustrate the importance of accounting for travel agencies, we’ll consider the example of an agency owner named Katherine.
Katherine’s tourism agency brought in many clients because she enjoyed meeting people, planning couples’ vacations, and making money. She loved coordinating trips for her clients, but she disliked having to record economic transactions. What was the result?
Because Katherine lacked the financial data and reports, she ended up missing out on tax deductions and paid more in taxes than she should have. She also had no idea how much capital the company actually had, and would occasionally overspend. Moreover, when Kate wanted to grow her business, she didn’t have accounting data to help her understand if she could afford to hire additional employees. Because Kate took a lax approach to collecting financial data, she was unable to make effective decisions and her business was left in a more uncertain situation.
If you own a travel agency, you can avoid these complications. A precise and effective accounting system will guarantee that you have reliable financial data at hand, helping you to optimize operations, strategize for the future, and prevent problems at tax time.
How to manage travel agency accounting
Travel agency accounting involves recording every transaction in which money flows into or out of the business. A travel agency brings in revenue when it sells tickets, hotel reservations, tour packages, and other services that ensure a comfortable journey. An agency’s expenditures, on the other hand, often include staff wages, advertising campaigns, travel spending, and maintenance of vehicles and equipment. Because there are so many transactions to oversee, it is important to establish an effective approach to bookkeeping for travel agencies.
Determine your accounting system
Before you can record transactions, you need to decide whether to use cash or accrual accounting. These methods are very different. Cash basis accounting only records transactions when funds enter or leave your account. This method, while intuitive, gives you only a limited understanding of your financial situation.
Accrual accounting considers transactions as they actually occur, regardless of when money changes hands. Suppose your customers book a $1,500 tour one month but plan to pay the next month. You should record this transaction at the time of booking, rather than when the customers have paid. This approach to accounting gives you a more comprehensive understanding of your financial position. It is also the only GAAP compliant method, which means it must be used for any official purposes.
Bookkeeping setup and bank account opening
Next, you need to select a method for recording operations. Consider the following criteria:
- Do you plan to do bookkeeping offline or online? An online, cloud-based system is the most popular and convenient solution.
- Will you do the accounting yourself or work with a financial specialist?
- What software are you planning to implement?
Before answering these questions, take into account the estimated size of your business. For smaller travel agencies, you may be able to handle your own bookkeeping to a certain extent. For larger businesses, you will need to recruit professional assistance and use the appropriate software.
Define payment methods
Consider how you want customers to pay bills – via cash, bank cards, or transfers. These options must be specified before the accounting process can begin, as your financial specialist will need to register and check all systems that you use to settle with counterparties. By sticking to this predefined list of payment methods, you can massively simplify your financial reporting workload.
Keep financial records
To effectively manage your books, you need to record every single transaction. Most travel agencies encounter daily transactions with customers, so you will need to consistently track the movement of funds. This financial data will help you to create the following reports:
- The income and expense statement. This document shows your profit and loss for a specific period. It allows you to identify how the agency is using its capital, as well as determine the current ratio of its assets to its liabilities.
- The cash flow report. This document demonstrates a firm’s liquidity, and warns of possible problems with cash that may prevent investment or the payment of bills.
- The balance sheet shows the company’s economic position in a certain period. It shows your assets, liabilities, and personal capital, which helps you to assess the state of your business and make decisions for its future development.
Careful monitoring and record-keeping is required to keep track of all revenue, expenditures, and other operations. You should check your books every few weeks to ensure that your information is accurate and up to date.
Financial statements for travel agencies
Financial statements reflect your travel agency’s current economic situation, including its strengths and weaknesses. They also inform stakeholders, external and internal, in the following ways:
- Owners: you should use your financial statements to make informed decisions about the company’s prospects for long-term growth, such as attracting investors. You can also control the flow of funds for specific purposes. Entrepreneurs often focus on the profit and loss statement.
- Lenders: these are individuals and financial institutions that lend money to businesses, including travel agencies. In order to assess whether an investment is worthwhile, investors will consult financial statements to see if the agency can pay off its debts in the short and long term.
- Suppliers: in tourism, this category includes carriers, tour operators, hotels, and other partners. In order to work with you, these counterparties will want to verify that your agency is solvent.
Prominent investors often consult with financial advisors for advice about how to maximize their investment. In order to recommend investment in your travel agency, these advisors need financial statements to back up their recommendation.
Tips to organize travel agency accounting
It is crucial to properly organize your finances. After all, it’s nearly impossible to grow your business if you don’t know what is going on financially. Consider a few recommendations from experts on effective financial management:
- Create separate accounts: your agency’s finances must be completely separate from any personal finances, including accounts and credit cards. Otherwise, you significantly complicate the accounting process.
- Classify expenses correctly: discuss with a tax professional how to reduce your tax base with deductions. For example, maybe you can earn a deduction for the food you offer to tourists during the tour or the cost of traveling from to the tour’s starting point. Knowing the laws allows you to classify each operation, which can help lower your tax burden.
Some entrepreneurs try to conduct their own travel agency accounting, but they don’t always have the time to consider every transaction. Instead of this risky approach, you should consult with financial professionals who can provide all the necessary accounting services, including business integration with bookkeeping platforms, account receivable and payable control, and more.
The best bookkeeping software for travel agencies
If you are in the travel business, you should find the best bookkeeping platform to suit your needs. You will need a program that provides a full range of features tailored to the needs of travel agencies. Some reputable platforms include:
- QuickBooks Online: this program is like the Swiss Army knife of financial software. It offers a suite of functions, from invoicing processing, budgetary control, and tax calculation, giving you everything you need for effective financial management in one platform.
- Xero: this is another cloud-based software that offers the same tools as QuickBooks, but with a more user-friendly interface. For added convenience, this system syncs with other digital products, such as travel booking apps and payment platforms.
When choosing software for your agency, you need to consider your budget. The market offers a range of free, inexpensive, and more costly software options. If you operate a smaller travel agency, you may not need the most intensive software.
Get support of professionals
Proper bookkeeping is critical to success as a travel agent. Accurate records of transactions facilitate financial reporting, improve cash flow management, and ensure compliance with tax laws.
BooksTime provides the precise and up-to-date financial data that tourism agencies need to operate effectively. Our seasoned accounting experts can take care of the entire process, or provide custom solutions for specific tasks, such as the preparing financial statements or setting up accounting software. Let our team optimize your finances so you can focus on organizing unforgettable vacations. Just let us know what bookkeeping services you need!
