Is Your Tourism Business a Hobby or a Business?
Do you treat your tourism business as a hobby? Or as a business? Quick answer is probably, “Well, of course, a business!” But when you think about the financial end of things...do you REALLY?
Your checking account has money in it and your bills and employees are getting paid. You file your taxes on time (usually). That’s all there is...right?
I suppose that technically yes, you can get by with just those things, but savvy business owners in the tourism industry should pay attention to three key financial reports: the Balance Sheet, the Income Statement (sometimes called the Profit & Loss), and the Statement of Cash Flows.
This is the report that gives a snapshot of your business’s finances on a particular date. It tells everything you own (assets), everything you owe (liabilities), and how much ownership you have in the business (equity). Common things you’ll find on this report are:
Money that has been withheld from employees’ paychecks for taxes but not remitted to the state/federal tax agencies yet
How much you’ve taken out of the business for personal use
Your assets will equal your liabilities and equity added together. Another way to look at it is that if you subtract your liabilities from your assets, what is left over is your equity. What is left over is how much ownership you truly have in your business. How is that equity number looking when you run this report? (Are you even able to run this report? We’ll get to that in a bit.)
Income Statement (Profit & Loss)
The quick description of this report: it tells you if you’ve made money or lost money. Rather than it being at a set point in time like the Balance Sheet, this covers a particular time period, like a month or a year. It takes all the money you’ve taken in through sales and subtracts everything you’ve spent. If that answer is positive, yay! You have a net income! If that answer is negative (which is very possible), eek! You have a net loss. On this report you’ll commonly find:
Miscellaneous income (any sort of income that is outside your normal operations)
What does your Income Statement look like? Is there much money in the “Uncategorized Income” or “Uncategorized Expense” account? How often does this report get generated? If it’s just once a year at tax time, that’s good (it means you’re probably current on your taxes!), but by running this report on a regular basis more frequently you can keep tabs on how your business is doing. Is the information accurate on these statements - is your bookkeeping done properly and on a regular basis? If not then this report isn’t really worth much at all. (Again, we’ll get to this in a while!)
Statement of Cash Flows
This little-thought-of report is another “over a period of time” one. Many business owners, particularly seasonal business owners, talk a lot about cash flow, but most don’t know what the Statement of Cash Flows is or what it can do. I’ve put together a video that discusses the Statement of Cash Flows in this free video series, if you’d like to check it out. This statement looks at the health of your business slightly differently than the Income Statement. The Income Statement looks at whether you’ve made or lost money, period. The Statement of Cash Flows looks at how your cash amount has changed over time and, more importantly (in my opinion), what caused that change.
Some feel that the Statement of Cash Flows isn’t necessary if your books are kept on a cash basis (rather than accrual basis), but I personally feel it can still be a useful tool because it can highlight where the cash is coming from, which can clue you into the health of your business.
So how does your cash flow look? Can you tell? (I’m finally going to talk about it!)
Reports Not Happening?
If you, as a business owner, can’t readily get your hands on these reports when you want to, it sounds like you might want to reconsider your current bookkeeping strategy. Despite the way QuickBooks and Xero make it look, there is more to bookkeeping than buying the software and clicking a few buttons. An experienced bookkeeping professional will enter transactions timely and accurately, which will then allow you to use these reports to make better business decisions.
Are you thinking to yourself, “YES! That’s what I need for my business”? You can schedule a quick 15-minute preliminary consultation with me, to see if we are a good fit for each other. To learn more about my services and what I can do for you, click here.
Let’s do more with your business!