How to create a financial forecast for a tour operating business?
Creating a financial forecast for your tour operating business, and ensuring it stays up to date, is the only way to maintain visibility on future cash flows.
This might sound complex, but with the right guidance and tools, creating an accurate financial forecast for your tour operating business is not that hard.
In this guide, we'll cover everything from the main goal of a financial projection, the data you need as input, to the tables that compose it, and the tools that can help you build a forecast efficiently.
Without further ado, let us begin!
Why create and maintain a financial forecast for a tour operating business?
The financial projections for your tour operating business act as a financial blueprint to guide its growth with confidence and ensure its long-term financial viability.
To create them, you will need to look at your business in detail - from sales to operating costs and investments - to assess how much profit it can generate in the years to come and what will be the associated cash flows.
During challenging market conditions, maintaining an up-to-date financial forecast enables early detection of potential financial shortfalls, allowing for timely adjustments or securing financing before facing a cash crisis.
Your tour operating business's financial forecast will also prove invaluable when seeking financing. Banks and investors will undoubtedly request a thorough examination of your financial figures, making precision and presentation essential.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
What information is needed to build a tour operating business financial forecast?
The quality of your inputs is key when it comes to financial modelling: no matter how good the model is, if your inputs are off, so will the forecast.
If you are building a financial plan to start a tour operating business, you will need to have done your market research and have a clear picture of your sales and marketing strategies so that you can project revenues with confidence.
You will also need to have a clear idea of what resources will be required to operate the tour operating business on a daily basis, and to have done your research with regard to the equipment needed to launch your venture (see further down this guide).
If you are creating a financial forecast of an existing tour operating business, things are usually simpler as you will be able to use your historical accounting data as a budgeting base, and complement that with your team’s view on what lies ahead for the years to come.
Let's now zoom in on what will go in your tour operating business's financial forecast.
The sales forecast for a tour operating business
The sales forecast, also called topline projection, is normally where you will start when building your tour operating business financial forecast.
Creating a coherent sales projection boils down to estimating two key drivers:
- The average price
- The number of monthly transactions
To do this, you will need to rely on historical data (for an existing business), market research data (for both new and existing tour operating businesses), and consider the elements below:
- The current state of the economy and consumer spending patterns may affect your business's average price and number of monthly transactions. If the economy is thriving and people have more disposable income, they may be more likely to splurge on a higher-priced tour package or book multiple tours in a month. On the other hand, if the economy is struggling, people may opt for lower-priced tours or cut back on their overall spending, resulting in fewer monthly transactions.
- The seasonality of your tour destinations may also impact your business's average price and number of monthly transactions. If your tours are focused on summer beach destinations, you may see a higher average price and more monthly transactions during the peak summer months. However, during the off-season, you may need to lower your prices to attract customers and may experience a decrease in monthly transactions.
- The availability and cost of transportation to your tour destinations can also affect your business's average price and number of monthly transactions. For example, if airfare prices increase to your top tour destinations, you may need to raise your tour prices to cover the additional cost. This could lead to a decrease in monthly transactions as some customers may opt for cheaper alternatives or postpone their trips.
- The popularity and demand for your specific tour destinations can have a significant impact on your business's average price and number of monthly transactions. If your tour destinations are popular and in high demand, you may be able to charge a higher price and see an increase in monthly transactions. However, if the destinations lose popularity or become oversaturated with other tour operators, you may need to lower your prices to stay competitive and may experience a decrease in monthly transactions.
- The weather and natural disasters can also affect your business's average price and number of monthly transactions. If your tour destinations are prone to severe weather or natural disasters, you may need to offer discounted prices or cancel tours, resulting in a decrease in average price and monthly transactions. Alternatively, if the weather is ideal and there are no major natural disasters, you may be able to charge a premium for your tours and see an increase in monthly transactions.
After the sales forecast comes the operating expenses budget, which we will now look into in more detail.
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The operating expenses for a tour operating business
The next step is to estimate the expenses needed to run your tour operating business on a day-to-day basis.
These will vary based on the level of sales expected, and the location and size of your business.
But your tour operating business's operating expenses should include the following items at a minimum:
- Your staff costs, including salaries, benefits, and training expenses.
- Accountancy fees for managing your financial records and tax obligations.
- Insurance costs, including liability insurance for your business, as well as travel insurance for your clients.
- Software licenses for tools and programs needed to manage your business operations, such as booking and reservations software.
- Banking fees, including transaction fees and monthly maintenance fees for your business bank account.
- Marketing and advertising expenses to promote your tours and attract new customers.
- Office rent or lease payments for your business headquarters or storefront.
- Transportation costs for your tour guides and staff, including fuel, maintenance, and vehicle rentals.
- Utility expenses, such as electricity and water, for your office or storefront.
- Permits and licensing fees for operating your business in certain locations or offering specific types of tours.
- Supplies and materials needed for your tours, such as maps, brochures, and equipment rentals.
- Professional development and training expenses for your tour guides and staff.
- Travel expenses for scouting new tour locations, attending industry conferences, and conducting market research.
- Legal fees for consulting with attorneys and obtaining necessary legal documents for your business.
- Office equipment and furniture expenses, such as computers, printers, and desks.
This list is, of course, not exhaustive, and you'll have to adapt it according to your precise business model and size. A small tour operating business might not have the same level of expenditure as a larger one, for example.
What investments are needed to start or grow a tour operating business?
Your tour operating business financial forecast will also need to include the capital expenditures (aka investments in plain English) and initial working capital items required for the creation or development of your business.
For a tour operating business, these could include:
- Tour Vehicles: This includes the purchase or lease of vehicles such as vans, buses, or boats that are used for transporting customers during tours.
- Equipment and Supplies: This covers the cost of purchasing or leasing equipment and supplies necessary for conducting tours, such as camping gear, audio systems, or navigation devices.
- Office Space and Furniture: This includes the cost of renting or buying office space, as well as purchasing furniture and equipment such as desks, chairs, and computers.
- Tour Guide Training: As a tour operating business, it is important to invest in the training and development of your tour guides. This can include certifications, workshops, or other training programs.
- Website Development: In today's digital age, having a professional and user-friendly website is essential for a tour operating business. This may include the cost of hiring a web developer, designing the website, and ongoing maintenance and updates.
Again, this list will need to be adjusted according to the size and ambitions of your tour operating business.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
The financing plan of your tour operating business
The next step in the creation of your financial forecast for your tour operating business is to think about how you might finance your business.
You will have to assess how much capital will come from shareholders (equity) and how much can be secured through banks.
Bank loans will have to be modelled so that you can separate the interest expenses from the repayments of principal, and include all this data in your forecast.
Issuing share capital and obtaining a bank loan are two of the most common ways that entrepreneurs finance their businesses.
What tables compose the financial plan for a tour operating business?
Now let's have a look at the main output tables of your tour operating business's financial forecast.
The forecasted profit & loss statement
The profit & loss forecast gives you a clear picture of your business’ expected growth over the first three to five years, and whether it’s likely to be profitable or not.
A healthy tour operating business's P&L statement should show:
- Sales growing at (minimum) or above (better) inflation
- Stable (minimum) or expanding (better) profit margins
- A healthy level of net profitability
This will of course depend on the stage of your business: numbers for an established tour operating business will look different than for a startup.
The projected balance sheet
Your tour operating business's projected balance sheet provides a snapshot of your business’s financial position at year-end.
It is composed of three types of elements: assets, liabilities and equity:
- Assets: represent what the business possesses including cash, equipment, and accounts receivable (money owed by clients).
- Liabilities: represent funds advanced to the business by lenders and other creditors. They include accounts payable (money owed to suppliers), taxes payable and loans from banks and financial institutions.
- Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.
The cash flow projection
The cash flow forecast of your tour operating business will show how much cash the business is expected to generate or consume over the next three to five years.
There are multiple ways of presenting a cash flow forecast but from experience, it is better to organise it by nature in order to clearly show these elements:
- Operating cash flow: how much cash is generated by the tour operating business's operations
- Investing cash flow: what is the business investing to expand or maintain its equipment
- Financing cash flow: is the business raising additional funds or repaying financiers (debt repayment, dividends)
Your cash flow forecast is the most important element of your overall financial projection and that’s where you should focus your attention to ensure that your tour operating business is adequately funded.
Note: if you are preparing a financial forecast in order to try to secure funding, you will need to include both a yearly and monthly cash flow forecast in your tour operating business's financial plan.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Which tool should you use to create your tour operating business's financial forecast?
Creating your tour operating business's financial forecast may sound fairly daunting, but the good news is that there are several ways to go about it.
Using online financial projection software to build your tour operating business's forecast
The modern and easiest way to build a forecast is to use professional financial projection software such as the one we offer at The Business Plan Shop.
There are several advantages to using specialised software:
- You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
- You have access to complete financial forecast templates
- You get a complete financial forecast ready to be sent to your bank or investors
- You can easily track your actual financial performance against your financial forecast, and recalibrate your forecast as the year goes by
- You can create scenarios to stress test your forecast's main assumptions
- You can easily update your forecast as time goes by to maintain visibility on future cash flows
- You have a friendly support team on standby to assist you when you are stuck
- It’s cost-efficient and much cheaper than using an accountant or consultant (see below)
If you are interested in this type of solution, you can try our forecasting software for free by signing up here.
Calling in a financial consultant or chartered accountant
Enlisting the help of a consultant or accountant is also a good way to obtain a professional tour operating business financial forecast.
The downside of this solution is its cost. From experience, obtaining a simple financial forecast over three years (including a balance sheet, income statement, and cash flow statement) is likely to cost a minimum of £700 or $1,000.
The indicative cost above, is for a small business, and a forecast is done as a one-shot exercise. Using a consultant or accountant to track your actuals vs. forecast and to keep your financial projections up to date on a monthly or quarterly basis will cost a lot more.
If you opt for this solution, make sure your accountant has in-depth knowledge of your industry, so that they may challenge your figures and offer insights (as opposed to just taking your assumptions at face value to create the forecast).
Why not use a spreadsheet such as Excel or Google Sheets to build your tour operating business's financial forecast?
Creating an accurate and error-free tour operating business financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.
Most entrepreneurs lack the expertise required to create an accurate financial forecast using spreadsheet software like Excel or Google Sheets. As a result, it is unlikely anyone will trust your numbers.
The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.
This is why professional forecasters all use software. With the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.
Finally, like everything with spreadsheets, tracking actuals vs. forecasts and updating your forecast as the year progresses is manual, tedious, error-prone, and time-consuming. Whereas financial forecasting software like The Business Plan Shop is built for this.
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Use our financial projection templates for inspiration
The Business Plan Shop has dozens of financial forecasting templates available.
Our examples contain both the financial forecast, and a written business plan which presents, in detail, the company, the team, the strategy, and the medium-term objectives.
Whether you are just starting out or already have your own tour operating business, looking at our template is always a good way to get ideas on how to model financial items and what to write when creating a business plan to secure funding.
Takeaways
- A financial forecast shows expected growth, profitability, and cash generation metrics for your tour operating business.
- Tracking actuals vs. forecast and having an up-to-date financial forecast is key to maintaining visibility on your future cash flows.
- Using financial forecasting software is the modern way of creating and maintaining financial projections.
We hope that this guide helped you gain a clearer perspective on the steps needed to create the financial forecast for a tour operating business. Don't hesitate to contact us if you have any questions!
Need a convincing business plan?
The Business Plan Shop makes it easy to create a financial forecast to assess the potential profitability of your projects, and write a business plan that’ll wow investors.
Also on The Business Plan Shop
- Financial forecast example
- Example of financial forecast for business idea
- How to create a turnover forecast for a business?
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Founder & CEO at The Business Plan Shop Ltd
