Accounting and Financial Management for Travel Agencies

Module 3: Running the Travel Agency Business

Unit 3: Financing Your Business

Learning Objectives Key Learning Points

‚‚Explain
financing
why businesses need 3.1 • Agencies need financing for a variety of expenses.
• You will use management accounts, budgets, and forecasts
‚‚Define standard financing
requirements
to determine your financing needs.
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3.2 • Agencies identify their financing needs by considering
‚‚Compare the benefits and
challenges of equity versus debt
working capital, cash flow, and capital infrastructure.

financing • Working capital – Current assets, including cash and

receivables, minus current liabilities. In practical terms,
‚‚Describe IATA’s requirements for
changes in ownership
working capital is the financing necessary to fund
immediate gaps between payments to suppliers and receipt
of customer debt.

• Cash flow – Cash flow tracks an agency’s cash payments,

such as salaries, rent, purchase of infrastructure, and
receipts on a longer term. When determining cash flow,
agencies consider fixed expenses as well as other
variable expenses such as interest, dividends, purchase of
buildings, etc.

• Capital infrastructure – Payments for assets that the

business will own for more than 12 months and which will
be used to generate profit.
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3.3 • Equity financing involves issuing shares to new or existing
shareholders.

• Advantage: The agency receives a quick cash inflow

without a repayment date or deadline.

• Disadvantage: The agency may have to give some control

to the shareholders.
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3.4 • If an individual or business buys all the equity shares in an
agency, they then own and control the business.

• IATA considers this a change of ownership and therefore

certain conditions must be met to maintain accreditation.
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3.5 • Debt financing includes bank loans, overdrafts, lines of
credit, leases, and long-term loans.

• Loans and lines of credit require interest payments and

instalment payments of the debt principle.

• With debt financing, control remains with the

business owner.

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