To achieve and retain protection under the ATOL scheme, travel firms must maintain certain financial standards to demonstrate solvency and a degree of stability.
Failure to demonstrate this could be an indicator that your business could be a financial risk to the administrator of the scheme, the Civil Aviation Authority (CAA).
To qualify for ATOL registration, your business needs to demonstrate performance according to certain ratios, calculated with data including:
- Assets and liabilities
- Profit
- EDBITDA
- Revenue and projected revenue
It is therefore beneficial for your business to optimise these elements and give your ratios – and overall financial health – a boost. This will support your ATOL application and facilitate sustainable growth in the future.
How should you approach this? Each business will do it differently, but we recommend taking steps to enhance two key financial areas – debts and income.
This gives you space to pursue your business’ goals within this framework.
Liabilities
The CAA, as with the majority of insurers and lenders, may view excessive debts or other financial liabilities as a risk.
This is because you will often be expected by creditors to prioritise debts over other commitments.
Excessive debts may also be an indicator that your business lacks a regular, sustainable level of revenue, which can make the CAA reluctant to offer you ATOL coverage.
In terms of reducing liabilities, think long term. Paying off commercial debts is rarely a quick fix, so take some time to identify all outstanding debts and other liabilities, prioritise them by urgency, interest rates and the terms of each agreement.
You can then work to achieve a manageable level of debt.
Maintaining this may be an indicator that your financial strategy is sustainable and you may be more likely to achieve ATOL registration.
Liquidity
One of the areas in which you will be assessed for ATOL registration is your cash ratio, comparing your cash levels to your current liabilities.
We know that this is an area where some businesses struggle as many hold substantial non-liquid assets such as property, transportation and investments.
However, it is important to have a healthy level of liquidity to secure ATOL registration – particularly if your business has significant liabilities.
Low levels of liquidity coupled with debts may indicate that you are financially risky as you may need to make sudden and drastic spending cuts to meet liabilities.
With this in mind, you might look at growing your liquid assets alongside reducing your liabilities through methods such as:
- Delaying or reducing investments
- Reviewing your pricing structure
- Selling or scaling back on assets.
As outlined online, the ATOL criteria state that, if your business does not meet the criteria at this time, you will “be informed of the requirement in order to do so, which is normally through an injection of cash.”
Improving your liquidity can help you to achieve this without needing to, for example, source a loan or boost your revenue through commercial activities.
For advice on optimising your financial position to achieve ATOL registration and meet its financial criteria, please contact our team today.
