Latest / Travel Agency in a Year / Day 91 - Can you survive the next travel disaster? Understanding Cash Flow
Transcript
- Rachel K: on day 91 of the travel agency year in a podcast and thanks again for joining us today. I'm gonna start reminding you if you haven't subscribed yet you need to just subscribe to this podcast because it's so much information totally free really could help your travel agency or share this with somebody whatever. I'm Rachel K with elevate with Rachel K.com and day 91 is understanding cash flow. Because we're doing the quarterly review and maybe you're reviewing your financials and you're like, I totally have all this money. But wait, let's do a little bit of business financial education here just in case. And you don't have to follow any of this. Don't worry about it. But it will truly help you when your business is in a bind due to personal or extenuating circumstances that's causing bookings to go down. So having extra money in your account doesn't necessarily mean you're ahead. And you may have just completed your first quarterly review, and you're like, I'm great. And I'm not saying you're not great. That's awesome. Celebrate it. And something to consider moving forward. Failure to properly manage your cash flow is the number one killer in any small business endeavor or business in general. Like businesses go bankrupt and then eventually have to shut down because they aren't properly managing cash flow. So there are four main components to cash flow. Let me make sure I got all four written down. I do. I was worried that my notes wouldn't have it all. ⁓ When you're reviewing your finances, it's important to understand how you are doing with your cash flow and these four main components. So you can cover expenses when life happens, like I mentioned just a few, like a minute ago. Like, you could end up with a major personal injury that takes you out for weeks, months, years. You could end up maybe having a child, which is a blessing. And also, if you have to stay home for a few months, or you could have a grandchild that you have to help take care of. ⁓ There could be some world event that like kind of halts travel for a few months and scares a lot of people. I know so many agencies shut down in 2020. A, because they were closer to retirement anyway. B, they were like, I don't have the money to keep this float. I got to shut it down. So if you want to outlast the ups and downs of life, this is what you need to consider. Don't have to make any changes now if you just did your quarterly review and you're like, is exactly how I'm going to do it. Just something to consider. ⁓ It could even be like if you overhaul your niche completely and you know there's going to be like a dip in bookings because you have to completely revamp your audience, your ICA, services, procedures, get training on new offerings. That's probably going to happen about every five to ten years or so in a travel agency. In my experience. I've been doing it way too long now that I do the math. I think I'm eight years in. And I have recently completely revamped my own travel agency, like my niche as the travel agent in my travel agency. So number one is can you afford an operator's salary? Now this is especially important if you intend to scale to the point where you are essentially hands off in your travel business. People often confuse entrepreneurship and self-employment. I sometimes use the terms interchangeably because it's just. I don't know, it sounds better to be like, ⁓ you're an entrepreneur. You are not an entrepreneur until your business is built up to the point where you do not have to exist in the company at all. That means that that is a true revenue generating asset that is hands off. And for the most part, like you aren't the face of the brand. You aren't ⁓ so heavily involved in it. and that gives you the opportunity to be able to sell it. And that's when you're like in the entrepreneurial sphere. Self-employment is when you're very similar to an entrepreneur, but you're more involved in the day-to-day because you are employing yourself in the business. ⁓ So the operator's salary, if you want to scale to a point where you aren't working in the travel agency every day and you're just more like CEO decision maker. you need to consider what an operator's salary would be. And most likely, whatever you are paying yourself, probably around that range, right? This could also be considered if you want to scale up to the point where you have VAs ⁓ or employees underneath you helping you run the day-to-day aspects of your business. Can you afford either one of those? And I know I talk about the VA pay in the success circle and like roughly, percentages you need for your gross revenues to be able to be comfortable with it, like how you can do the math. I'm not telling you what the number is because everyone's different. But if the goal is to scale for employees, VAs, management team that takes over everything and you don't have to be the face of the brand, prepare to start setting aside funds for an operator salary, which this is going to be like a manager. The goal, even if you've already hired people, you just consider eventually working your way up to this goal, is 2X the annual costs for them. So even if a VA is $1,000 a month, it would be wise to work up towards having $24,000 set aside to cover up to two years of their costs. And I know you're like, Rachel, you've already said just like 6 to 12 months of expenses. Yes. 2X of the operator salary, VA stuff, all that fun stuff is wise. You can do it for just one year. This can also cover you if you do 2X too. If you are doing just fine and you need to hire a second VA, if you have two years worth of salary covered or their costs, whatever. And I'm saying again, if you've already hired VAs, don't be like, shoot, I don't have that right now. Factor it into your budget and work your way towards it. Then you can hire a second person and you at least have one year of pain for both of them if you need to. And you always have the ability to scale back if you need to. And if you have to cut both of them out, if something major, major, major happens, you have that much money to cover yourself as well. So think about that. I know you're probably like, I don't even make $24,000 in commissions any This is longer term. If you're brand new, you're not going to have that kind of money right away. Most agents that I've mentored don't start out breaking. I've had one advisor I know that I mentored heavily, and I think their first full year they made $85,000, and that was crazy awesome. That is not the norm. Okay, number two, did you take out like business loans or personal loans or maybe you're putting things on your credit card to cover expenses? I have been there, don't worry. That was COVID times for me. That was good old COVID, everything on the credit card, it's fine. If you did, can you pay your debt back? So obviously we're all adults. I hope that you already understand that you can. Like that is your first and foremost. is debt usually carries interest. And interest is a bigger loss. more debt is a liability. So why would you not want to pay that off as soon as possible? But can you? Interest is so risky, especially when it's like higher and you're putting it on a credit card and you don't have like the 0 % introductory APR, like that's gone. And I don't know, it's like 25 to 30 % on credit cards. And that's significantly higher than if you didn't have that debt and you could put that into an investment account that would bring you a return on your investment. This probably should have been number one. But even if it's a loan from a family member that's like, here, I'm going to loan you this money, can you pay that back? And this is just like, of look at your overall cash flow for all this. Could I pay for two years worth of VA cost? Could I also pay off all my debts? Or am I paying my debts off in a reasonable amount of time? ⁓ So this is viewing your cash flow. And if you see, I don't have the ability to pay my credit card off or I don't have ⁓ all of the funds for two years of operator salary or whatever, then it's time to look at what am I spending my money on or conversely how much sales am I actually generating. I just had deja vu, it's fine. Number three, do you or are you setting funds aside for general growth? And I've talked about this in multiple episodes and I highly recommend picking up the book Profit First, reading it, implementing that system, financial management system in your business, even in your personal finances. Just, I'm a huge fan of it. You do whatever you want to do. But in the Profit First method, you decide to allocate a certain percentage to a profit account, quote unquote. Like you name it profit. And then each quarter, 50 % of that balance you can use to either reinvest in your business or give yourself a little bonus pay or split it between the two however you want to do it. The goal is... Try not to have, oh, here's all my math. That's why I'm doing this. So the goal is the profit margin for an average travel agency is roughly 16%. So you would be able to take out 8 % each quarter to reinvest in your business. And based on your current sales, on your reports, and your commission reports that should be coming in, you should have a pretty good idea at the end of next quarter. So now we're in April, May, June. So July, what you would have money to reinvest in your business. And that could be upgrading your software. Maybe you need a new laptop or a new desktop. Maybe you need a new office chair or a new desk. ⁓ Maybe you have your eye on the software and you're like, I want to make the investment and I got to make the switch. Maybe you want to take a course or sign up for a fam. You can review what you've got now for your sales and the commission coming in should nobody cancel and everyone travels in the next quarter. If you can afford up to 8 percent of that can be reinvested in your business, right? Because 15, 16 percent is going to be in your profit account. If you're like, don't even have enough money for a profit account, that's fine. Start off with 1 percent and be very diligent. For every $100, you put $1 in this profit account, okay? And the next quarter, bump that up to 3%. So $3 for every $100. And try not to reinvest in anything if it doesn't, or reinvest in your business if it can't be covered by the profit account. Alright, point number four. Can you pay yourself? Can you even pay yourself after all of your expenses and your investments? So again, going back to the profit first method and these are numbers I wrote down from memory. These may not be accurate. They recommend 50 % of your gross revenues up to $125,000 in gross revenues should go back in your pocket as your pay period the end owner salary. Owners draw however you have your business structured. So that should give you about $62.50 a year in your income. And also remember, you will be taxed on that as well. Talk to a CPA about that. But I have heard of several agents who are like, ⁓ I don't pay myself anything. It just all goes back into the business. And that's kind of a nasty habit to develop. because you may come to a point where you're like, can discount my services. If you charge fees upfront, I can discount it because it all goes into the business anyway. you might be perfectly confident with not paying yourself and be fine. ⁓ But it could be tied to maybe an unworthiness mindset. I'm not worth it. I'm just going to slave away and give everything to my company rather than. reap the rewards and the fruit of the seeds I have sown. So if your cash flow plan is working for you, you're fine. These are just some things to consider. just some things you need to consider, definitely. And it's important to cultivate strict financial discipline. as a business owner because this is how you're going to grow your business is managing your money properly. And so think of it like if your business is a child, you got to feed your child, right? You also got to take care of yourself. ⁓ But if you are lacking in financial discipline, maybe one of these points hit you hard and you're like, shoot, I'm putting everything on my credit card and I'm just not caring. That, I hope, is a wake up call for you because there's no reason to go into debt severely. ⁓ to start this business. Now, I will say I did mention earlier in the episode, in the episode during like COVID and I was rebuilding and I switched host agencies and blah, blah. It was not fun. I do remember being at the edge, maxed out my credit card to sort of fund the business. So I was like, I don't want personal loans. I know it's a lower interest rate, but I just don't. It'll be fine. And that was kind of a little bit of a motivator for me to get a lot of fees so I could pay that down. And it was just like a matter of a few months where it was to the point where my credit card was like, ⁓ you're over limit, but since you submit payment every single week, and I would just submit whatever I could, 20 bucks, 25 bucks a week, whatever. They'd be like, we went ahead and approved this charge, because we know you're trying. And I was like, thank God that they allowed all of that to happen so that I could build my business up. So just don't make that a habit of like, ⁓ I can just put on my credit card and pay it off later. Which, duh. We've all been taught that. ⁓ But also, I hope this episode helps you if you aren't paying yourself at all or you aren't reinvesting in your business and you're suffering from burnout because you're refusing to implement new tools because you want to save money and continue to grow. That's not how that works. The phrase you got to make money to spend money is true. You have to reinvest and spend a little bit of money. Don't spend too much of it though because that's that phrase you got to spend money to make money. anyone I've ever heard say that is completely underwater in debt. They look cool. Anyway, or possibly you could lead to burnout and start gaining resentment in your clients because you aren't rewarding yourself. So be very careful of that as well. All right, so that was a little bit about the cash flow ease for your plan and your financial discipline. I hope you have a wonderful day. Tomorrow we're going to do. some communication tweaks. You're like, no, I already did my quarterly review. This is all kind of tied to the quarterly review. So you don't have to listen tomorrow if you don't want. All right, thanks, and have a great day.