Section 4: Financial Management, The Outfitter's Manual - Nature and Outdoor Tourism Ontario

SECTION 4
FINANCIAL MANAGEMENT

“Money is better than poverty, if only for financial reasons.” - Woody Allen

Financial management is all about keeping your operation’s finances in order. You need to understand where your money comes from and where it goes in order to ensure that your operation is successful. Financial management is an essential part of your overall management plan that will help you plan, forecast, and implement changes to your operation.

Most small businesses fail, not from difficulties with the economy, but, because of bad management. Talk to a qualified bookkeeper and accountant; find one that knows the tourism industry. Set up a proper bookkeeping system and stay on top of your finances to optimize the management of your operation. As a small business operator it is essential that you understand and practice fundamental financial management skills.

This section will deal with financial management by looking at:

Record keeping
Financial statements
Budgeting
Computer software

1. RECORD KEEPING

Record keeping is done for many reasons:

to plan and control day-to-day operations
to determine cash flow for short term and long term needs
to establish budgets
for long term planning and decision making
to comply with tax laws
to create financial statements

Good bookkeeping is essential for the optimum management of your operation. You need to establish a system to account for revenues and expenses. Having receipts and invoices on file provides the evidence that transactions occurred.

Monthly journals are used to record all transactions for the month. It is best to make daily entries to stay on top of your financial situation. At the end of the year you can tally each category to have a good idea of your total income and total costs. By breaking down your costs, in terms of areas of expenditures, you can find problem areas and address them as part of your planning and decision making process.

Payroll is another component of bookkeeping. You should have a separate payroll journal to record employee hours and salaries. As an employer, you need to have a registered Business Number (BN) with Revenue Canada. You are required to calculate and determine income tax, Canada Pension Plan (CPP) and Employment Insurance (EI) deductions, for all of your employees.

For more information go to the Revenue Canada payroll web sites for small businesses:

http://www.cra-arc.gc.ca/tx/bsnss/tpcs/pyrll/menu-eng.html

Talk to a professional:

Good record keeping begins with consistent, regular bookkeeping. It is best to talk to a bookkeeper or accountant to set-up or update your record keeping system. You should meet with an accountant, one that is familiar with the tourism industry, at least once a year. By talking to a professional in financial management, your financial situation stays current and properly managed. When you work with an accountant or bookkeeper on a regular basis, your job becomes easier and in the long run, you will save money. As you gain control of your financial situation, your management becomes more efficient and your operation will be more successful!

2. FINANCIAL STATEMENTS

A financial statement is a written report that summarizes the financial status of your operation for a stated period of time. The financial statement will include a balance sheet describing the flow of resources, and a statement of income which will indicate whether your operation showed a profit or a loss.

The Balance Sheet* lists in detail your operation’s assets and liabilities.

Assets include:

current assets - the cash or items that are expected to turn into cash (such as inventory)
fixed assets - the permanent items of your operation, such as land, buildings, equipment, etc.

Liabilities are your debts. They include:

current liabilities - the items you have for resale, taxes, wages, and expenses that have to be paid in the year
long-term liabilities - loans, mortgages, etc., that are paid over the long run
Many small proprietorship-style businesses do not make use of a Balance Sheet. Financial institutions often require them for their decision making on loans and lines of credit. Get advice from a competent source to advise on the need.

The Statement of Income is a measure of your operation’s income and expenses over a period of time. It is also known as a profit or loss statement. If your income is greater than your expenses, the statement of income will show a net income. However, if your expenses are greater than your income, it will show a net loss.

Other useful financial (supplementary) documents are Sources and Uses of Funds, and Statement of Cash Flows. (PS-check with accountant on most current titles of these and their value to a lodge owner).

Financial statements are the end product of your bookkeeping or accounting process. Your financial statement can help you to find the strengths and weakness in your operation and make timely modifications. Financial statements are also something your banker will want to see when you are negotiating any new loans.

3. BUDGETING

Budgeting is an activity that helps you:

plan your day-to-day and yearly operations
meet your long term financial goals
make sound financial decisions
organize cash flow

There are different types of budgets to consider. The three most common are:

a. Operating Budget

An operating budget helps you to manage your operation in terms of staffing and resources. You need to plan your operating budget for the upcoming season well in advance; during the fall and winter if you are not a four-season operation.

Set your goals and schedule them accordingly. Financing these goals depends upon the amount of income you expect to receive during the season. Using past records and booking targets, you need to forecast your revenues for the upcoming season.

You also need to estimate your operating expenses for the season such as wages, supplies and services. Don’t forget to include fixed costs, such as insurance, taxes, interest and depreciation.

Once all your forecasts have been summarized you can look at the numbers and make adjustments where necessary. Try to stay flexible in some areas in case your revenues don’t make their target.

b. Capital Budget

A capital budget must be created in order to set aside money for the maintenance of your operation. A capital budget is usually set up for the long term but, it needs to be addressed on a yearly basis. You need to know, year-by-year, how much money you can afford to spend on new items and services such as, equipment and maintenance.

c. Cash Flow Budget

A cash flow budget shows your operation’s expected cash inflows and cash outflows over a period of time. Cash flow budgets can be difficult for the seasonal operator because there is no incoming money for much of the year. If you are a seasonal operator it is imperative that you do have a cash flow budget and that you are especially diligent in planning.

With a cash flow budget you can determine when you will have a cash surplus or a cash deficit where you require additional finances.

4. COMPUTER SOFTWARE

User-friendly computer software packages can greatly simplify your record keeping and financial management. Powerful accounting software can provide you with current balances, monitor your cash flow, and help you to plan and stay on your budget. By making daily entries on your computer you can easily stay on top of the financial situation of your operation.

One of the more popular office software packages among Outfitters is Simply Accounting.

Simply Accounting:
http://www.simplyaccounting.com

You can download a free trial of this software from the website. If you do decide to buy this software make sure to get the Canadian version that deals with the GST. With the purchase of the software you get free set-up support, FAQs, and a live e- forum if you really get stuck.

Most bookkeepers and accountants are familiar with Simply Accounting and you can readily send them your statements through email. Simply Accounting software packages range in price from $200 to $1200, depending on what options you would like to purchase.

Of course, there are other accounting software packages available. Check with your bookkeeper or accountant to determine which accounting software package best suits your needs.

Managing your guests can also be made easier with computer software. Reservation Master is guest management and reservation software. You can buy Reservation Master software specifically for the resort industry.

Reservation Master:
Tom Pingel (218)547-0914

Reservation Master will help with your front desk operations and reservations. It can also help you to book and sell your vacation packages. Reservation Master is able to generate a guest list that you can use for marketing and advertising. Other features include email confirmation letters and credit card processing and settlement. Reservation Master software packages range in price from $700 to $800.