Becoming Your Own CFO Doesn’t Mean Earning an MBA

Starting a travel agency because you love travel is all well and good, but advisors also need to recognize that owning their own business also makes them a business owner.

And with that comes the responsibility of understanding the finances behind your business, how cash flows through it, and most importantly, how you can pull different levers to make your business more profitable.

However, for many travel advisors who run their own agencies, this is one of their least favorite parts of being an entrepreneur. Steve Hirshan, senior sales vice president, Avoya Travel Network, urges advisors to consider being their own chief financial officer (CFO), even if they don’t have a finance degree from Wharton. Here are some basic tips he offers.

1. It all starts with you
Understanding your basic financial wants and needs is the first step in establishing financial goals for your business, Hirshan said.

“Before you can get into what you want to do with cash flow, you first have to figure out what you are looking to make every year,” he said. “Is this your full-time job and you need most or all of the income from it for your living expenses? Or do you have other sources of income that being an agent will supplement. Those are two different starting points for an advisor.”

Managing your business strategically will be more difficult if you’re not confident that the number and types of clients and suppliers you work with can, at a minimum, meet your basic needs. Like any job, know your target salary requirements.

2. Cash is king
One of the most critical financial details a travel advisor needs to understand is the concept of cash flow. At a basic Economics 101 level, cash flow is the “net amount of cash and cash-equivalents transferred into and out of a business.” The goal, of course, is to generate “positive cash flow,” so that what your business earns exceeds your expenses.

The more complicated aspect of cash flow is that not every day, week or month, does a business like a travel agency produce positive cash flow. Travel is seasonal, and most income isn’t produced the moment a trip is booked. In fact, most income for most travel advisors hits a bank account months, and sometimes years, after travel reservations are completed.

“This is where things can get confusing,” Hirshan said, and why understanding the components of your income, based on what you sell, is critical.

For example, what if you specialize in family travel, and the bulk of your commissions come during and directly after the summer, because most of your clients take their vacations then?

You may want to look at better managing your cash flowing in, by instituting service fees, which are collected at the time a client employs you. Since that income is paid at the time of booking, service fees can expand your overall annual income, and supplement a business whose commission payments are seasonal.

Hirshan also recommends agents consider selling travel insurance, which pays commissions immediately. “Selling travel insurance is a super cash flow accelerant, instead of finding yourself burning through cash,” he said.

Another important aspect of managing cash flow is understanding your expenses. Just because your business is profitable over a given 12-month period, doesn’t mean you’re profitable every week or month. Having a monthly cash flow statement showing all of your income and expenses during each month can help you see trends and better plan for flush and lean periods.

3. Setting your plan
Once you have a basic understanding of how much income you need, how and when money flows into and out of your business, and which clients and suppliers earn you the best commission, you can design a business model that suits your needs.

“If you book $500,000 annually in cruises across three different cruise lines, you may not be maximizing your commission income,” Hirshan said. By capturing this kind of data in your financials, and analyzing it at least once a year, you can think about strategies like narrowing down to fewer preferred suppliers, and then trying to market more to attract clients inclined to book those suppliers.

An even deeper dive could help you understand how far in advance you are booking trips, and what you need to do to mitigate that impact.

“If a large share of your income is based on elongated booking windows, meaning you are waiting longer to have money in your bank account, maybe you need to mix in some shorter-term cruises to advance that income and fill those gaps,” Hirshan said.

Hirshan also thinks that understanding your financials can help you discover other areas of your business model that impact your ability to be successful. For example, how much time does it take to make a booking with certain vendors, and what is the typical commission for that booking?

“If you can make a mass market booking, at a lower average commission, in say 30 minutes, because you have an efficient system to process that sale and care for that client, you may find those bookings earn you more per hour than serving luxury clients with larger average transaction,” he said.

“But you won’t know that if you don’t understand your financials. Or you may assume incorrectly, and build a business that isn’t sustainable.”

Finally, Hirshan advises all agents to not let more sophisticated financial concepts stop them from becoming their own CFO.

“Yeah, I have a driver’s license, and I’m fine on my local highways. But put me in a NASCAR stock car, and I’ll be intimidated,” he said. “It’s nothing to be embarrassed about if business finance is intimidating. Just get behind the wheel and start driving.”