How seasonal is a travel agency’s cash flow, and how do I check it?

Revenue and cash can differ sharply in this business. A client may pay a deposit months before departure, while the supplier’s commission arrives after the trip ends. Ask which accounting method the firm uses, because cash-based books and accrual books will show different months as busy or slow.

Ask for monthly bank statements next to the financial statements for several years. Mark the weakest months and see how the firm got through them. Did the owner draw less, delay supplier payments, use a credit line or inject personal money? Those answers show how much cushion the firm really has.

Look at timing items one at a time. Find out how client deposits are handled and whether they sit in a separate account. Check what refunds and cancellations looked like in past years and how commissions are paid and recovered. Ask about unpaid commissions owed to the firm. Then build your own monthly plan with your accountant, including a reserve for the slow stretch. A lender will likely ask for it. Check, too, whether the seller’s year-end falls at a flattering point in the cycle.

Key takeaways

• Chart monthly cash for several years to find the low points.
• Learn how deposits, commissions and refunds are timed and where the money sits.
• Ask how the owner funded slow months before you plan your own reserve.
• Check whether the seller’s year-end sits at a flattering point in the cycle.