TS309 – TOURISM BUSINESS OPERATIONS

SEMESTER 1 - 2019

Week 8

The dollars & sense

of your business
Presented by Stuart Gow
 Learning Outcomes

On completion of this week you will have an appreciation of:

1. appreciate why financial management is needed
2. be familiar with the main statements used for forecasting
3. be able to calculate financial ratios to assess financial health
4. know how to determine a break-even point
5. be familiar with sources of financing
6. be able to explain the accounting obligations of an ecotourism
business
7. be able to evaluate cash management techniques
 Key Terms

• Assets
• Liabilities
• Cashflow
• Sales
• Direct costs (Cost of Sales)
• Expenses
• Venture Capital
• Bank loan
• Financing
• Line of credit
• Overdraft
• Projections
• MSME : Micro-Small-Medium
Enterprises
 Reading

• Chapter 7 of textbook
• pp.95-116

• Patterson, C. (2007). The Business

of Ecotourism. (3rd ed.). Oxford:
Trafford Publishing.
 Additional Readings

• Moutinho, L. (Ed.). (2000). Strategic

management in tourism. Wallingford: CABI
Publishing.– Chapter 7. Financial management
in tourism (pp.187-209).
• Angelo State University Small Business
Development Centre. (2004). The Business
Plan.
• Small business association business plan outline
• Ramdeen, C., Santos, J., & Chatfield, H.K.
(2007). Measuring the Cost of Quality in a
Hotel Restaurant Operation. International
Journal of Contemporary Hospitality
Management, 19/4. 286-295.
• Upton, N., Teal, E.J., & Felan, J.T. (2001).
Strategic & Business Planning Practices of Fast
Growth Family Firms. Journal of Small Business
Management, 39/1. 60-72.

All available on Moodle

 YouTube Videos

• Funding your Startup

– https://www.youtube.com/watch?v=ih7FXVFvlRM
• Find Investors - How do you find investors & partners for
your business
– https://www.youtube.com/watch?v=7BM8-kIrhOY
• Angel Investors: How to Get Funded
– https://www.youtube.com/watch?v=dpYQqv-LdxQ
• Business Plan Financials Tutorial
– https://www.youtube.com/watch?v=YcVe6WRvX3U
• Startup Financial Projections - Sales
– https://www.youtube.com/watch?v=jFiPjaa7mBI
• How to Create a Cash Flow Forecast using Microsoft Excel
- Basic Cashflow Forecast
– https://www.youtube.com/watch?v=C5PcUSmfOZU
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 1

WHY IS FINANCIAL MANAGEMENT

NEEDED?
Why is financial management
needed?
• Many ecotourism
operators make relatively
small profits
• Sales for many operators
are low
• Seasonal revenues create
special challenges
• Managers want to avoid
fraud & cash flow
problems
 Financial Forecasting & Analysis

• Needed to :
– support planning
process
– obtain financing
– make informed
pricing decisions
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 2

BE FAMILIAR WITH THE MAIN STATEMENTS USED

FOR FORECASTING & SOURCES OF FINANCING
 Types Of Financial Forecasts

• Proforma
statements
• Budgets
• Cash flow forecasts
 Proforma Statements

• Involves the preparation of a

balance sheet & income
statement using transactions
that have not yet occurred
• Predicts your
– Revenue
– Expenses
– asset & liability positions

pro forma (Latin for "as a

matter of form" or "for the sake
of form") 
 Budgeting

• Means making financial

forecasts based on your
strategic & business plans
– Operating budgets: include
forecasted sales & expenses
– Capital budgets: outline your
purchases of equipment, land
& buildings
• Should be done annually
• Should be reviewed for
reasonableness before
adopting
 Cash Flow Forecasting

• Examines the timing of

money coming in & out of
your business
• Needed to identify upcoming
cash flow shortages
• Proper cash flow forecasting
means looking at more than
your bank balance
• Use of a cash flow worksheet
is helpful
 Cash flow forecast

• See Text Book

– Appendix A
– p.197
• Please note for your
final business plan you
need to hand in all
these worksheets
completed as an
appendix
 Sensitivity Analysis

• Can be helpful in
answering the “what if”
questions surrounding
financial forecasts
• Allows you to
determine the impact
of changing sales
volumes or prices
Sensitivity Analysis cont.

• Start with a base forecast &

then change one of the
underlying assumptions
e.g. price
• If the effect on net income
is proportionally greater,
there is a sensitivity to
change
• Can identify risks &
opportunities for business
managers
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 3

BE ABLE TO CALCULATE FINANCIAL

RATIOS TO ASSESS FINANCIAL HEALTH
 Financial Analysis Methods

• Comparative
analysis
• Common size
analysis
• Ratio analysis
• Break-even
analysis
 Comparative Analysis

• Involves comparing this

year’s results to last year’s
• Can also make comparative
analysis of competitors e.g.
– price
– new products
– food & beverages
– activities
– wages
• Helpful in identifying trends
 Common Size Analysis

• Involves stating your

expenses as a
percentage of sales
• Helpful in tourism
where margins are small
• Can be used to monitor
your daily business
operations e.g. food
costs
 Ratio Analysis

• Used by investors &

bankers to review your
business’ performance
– Liquidity - ability to pay
your bills
– Profitability - your
efficiency & return on
investment
– Growth - how well
change is being managed
 Ratio Analysis - Liquidity

Current Ratio Debt to Equity Ratio

• Current Ratio = Current • = Debt/Equity
Assets : Current Liabilities

(should be around 2:1) (should be 3.5 or less if seeking

bank credit)
 Ratio Analysis -
Profitability
• Gross Profit to Sales
= Gross Profit/Sales
• Net Profit to Sales
= Net Profit/Sales
• Return on Investment
= Net Profit/Owner’s
Equity
 Profitability Of Adventure Tour
Operators

Type of Business Average Gross Margin

Nature Observation 27.6 %
Bird Watching 18.1 %
Canoeing 19.4 %
Sea Kayaking 30.7 %
Rafting 11.1 %
Hiking 6.9 %
Rock/Ice Climbing 12.9 %
Bicycling 30.1 %
Source: Adventure Travel in Canada, 1995
 Ratio Analysis - Growth

• Sales Growth =
(Sales this year - Sales last year)/Sales last year
• Profit Growth =
(Profit this year - Profit last year)/Profit last year
• Asset Growth =
(Assets this year - Assets last year)/ Assets last year
• Debt Growth =
(Debt this year - Debt last year)/ Debt last year

• Looking for similar percentage change in all categories

 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 4

KNOW HOW TO DETERMINE A

BREAK-EVEN POINT
 Break-Even Analysis

• Useful in determining at
what point your
business starts to make
money
• Can provide valuable
information on
incremental profits
generated with each
sale
 Which costs?

• Need to determine if costs

are :
– variable (fluctuate
directly with level of trips
sold) e.g. equipment
rentals
– fixed (do not fluctuate
directly with level of
trips) e.g. marketing
costs
See p. 199 of textbook
 Formula For Calculating
Break-Even Point In Units

Contribution per unit Break-even points in units

• Contribution per unit • Break-even points in units
= Selling price - Variable = Fixed costs/Contribution
cost per unit per unit
 Formula For Calculating
Break-Even Point In Dollars
1. Variable cost per sales dollar
= Variable costs/Sales

2. Contribution per sales dollar

= $1.00 - Variable cost per
sales dollar

3. Break-even point
= Fixed costs/ Contribution
per sales dollar
 Break-Even Example
If : Estimated sales = $98,000
Variable costs = $45,000
Fixed costs = $40,000

1. Variable costs per sales dollar

= Variable costs ($45,000) /Sales($98,000)
= $0.46

2. Contribution per sales dollar

= $1.00 - Variable cost per sales dollar ($0.46)
= $0.54

3. Break-even point
= Fixed costs ($40,000)/Contribution per sales dollar
($0.54)
= $74,074
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 5

BE FAMILIAR WITH SOURCES OF

FINANCING
 Sources of Finance

• Finance is all about

where do you get the
money to start and run
your business
• Options:
– Bank loans
– Venture Capital
– Investors/partners
– Family/friends loan
– Your savings account
Needs a Business Plan!

• Will require a business plan

• Needs to
• outline your financial needs;
and
• the ability to repay creditors
or investors

• Is often difficult for

businesses to obtain
financing from conventional
sources
 Avoid underfunding

• Underestimating how
much to start the business
• Most common error in
MSME startups
• Good ideas that are
underfunded FAIL!
• You will need more
money than you
anticipate
• Build in a “fudge factor”
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 6

BE ABLE TO EXPLAIN THE ACCOUNTING

OBLIGATIONS OF A BUSINESS
 Accounting Obligations

• Bookkeeping • Internal controls are

needed to protect you
• Payroll from waste, fraud &
inefficiency
• Taxes
 Bookkeeping

• Not same as accounting

• ensure accurate & timely
records are kept
• The DAILY BOOK!
• Includes
– Invoices
– Purchase orders
– Receipts
– Daily batching
– Cash reconciliation
• Software solutions
 Payroll

• Wages & salaries

• Include statutory deduction
legalities:
– FNPF (superannuation)
– FNU Levy
– Withholding tax for contractors
– Union levy
– PAYE (Income tax)
• Software solutions
• look at outside help to ensure
payroll is correctly & easily
done
 Taxes

• ensure appropriate taxes

are collected & paid
• In Fiji this includes
consumption taxes:
– Service Turnover Tax
(10%)
– Value Added Tax (9%)
– Environment & Climate
Adaption Levy (6%)
• Company Income Tax
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Learning Outcome 7

BE ABLE TO EVALUATE CASH

MANAGEMENT TECHNIQUES
 Cashflow issues

• MSME often face cash flow

shortages
• especially during start-up
phase
• High & low seasonality
8 out of 10 MSME
startups go bust due to
cashflow, not profitability,
issues
• https://www.preferredcfo.com/cash-flow-reason-small-businesses-fail/
Cash management strategies

• leasing or renting
equipment instead of
buying
• contracting out services
• minimising operating
costs
• implementing booking
deposits and
cancellation fees
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Week : 1-8 April 2019

TUTORIALS WEEK 8
 Business Plan Briefings

• Group meeting to give • Overview of:

overview of the entire • pptx The Marketing
Business plan! Plan for your product
– outlining your product
– target markets
– SWOT analysis
– marketing strategies and
activities
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Stuart Gow
[email protected]
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Stuart Gow
[email protected]
 TS309 – TOURISM BUSINESS OPERATIONS
SEMESTER 1 - 2019

Week 9

The dollars & sense

of your business
Presented by Stuart Gow