6 Steps to Setting a Business Travel Budget

6 Steps to Setting a Business Travel Budget

With the uncontrollable variations in flight costs and unavoidable last-minute trips, it may seem impossible to come up with a reasonable travel budget.

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With some careful planning and thorough research, you’ll find that you can get a lot closer to that perfect T&E budget than you might think. Here are 6 steps that will help you figure out your business travel budget for next year.

Create a Business Travel Policy

If you don’t already have a clear, written travel policy, creating one is your first step. The idea isn’t to lock employees into a rigid set of rules. Instead, travel policies should help you prepare for the unpredictable and provide consistency for your traveling employees. A clear set of travel policies can provide important behavioral guidelines that prevent confusion and overspending.

Some tips for what to include in your business travel policy:

  • Who approves travel?
  • How far in advance should travel be booked? The further out the better, as you’ll be able to take advantage of lower flight and hotel rates as well as early-bird conference or trade show fees.
  • Who are your preferred vendors? Build relationships with airlines, car rental companies, and hotels to take advantage of lower rates and travel points. If a traveler is unable to find a flight on the preferred airline to their destination, they can always use another, but identifying preferred vendors will help you to take advantage of the best rates.
  • What is included in the traveler’s per diem? Food, of course. What about alcohol? Morning coffee? Entertainment for potential clients? Rideshares?
  • What purchases are not reimbursable? Dry cleaning? Parking tickets? Clothing purchases? Have a clear list of approved and unapproved purchases to make sure reimbursements are consistent. You can always include a way for the employee to appeal if there is a special circumstance. For example: a client spills coffee all over the traveler’s one good shirt, and he has to take potential clients out to dinner that night. In that case, it may be appropriate for the company to reimburse the expense for a new shirt.
  • How do expense reports get submitted? How long do travelers have to submit their expense reports? When will they get reimbursed?

Once you have a clear travel policy set up, you’ll be able to catch deviations from that policy more easily, and figure out where your budget is leaking. Plus, you’ll be able to do your job more efficiently.

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Look at the upcoming business travel calendar

The easiest travel to plan for is annual events. Are there any conferences, trade shows, trainings, or stockholder meetings that you send people to every year? Start with those. If you’re not sure, ask around!

You’ll also want to ask if there is any one-time travel that management is anticipating. Maybe one of the VP’s is planning on sending the whole sales team to a special training seminar. Make sure you ask about any of these proposed trips well in advance of your budget’s due date.

Try to establish how much each of these trips will cost per person. Look at past data to see how much last year’s conference cost. Also, make sure to do a little searching on what else is going on in town that week. If your annual trade show happens to coincide with a big music festival this year, airline and hotel prices may be inflated. You’ll want to work some extra room into your budget to account for those changes.

Of course, planning for the trips you know about is the easy part. How do you plan for the trips that you don’t know about yet? How do you know what you don’t know?

Look at past business travel expenses

To get a handle on how much travel is reactionary rather than pre-planned, take a look at last year’s data. How much of what was spent last year was for those regular conferences and trade shows? How much was to put out fires? How much was sales travel?

Try to break down last year’s travel expenses into buckets. Maybe it was 30% planned events and training, 40% sales travel, and 30% last-minute travel. Since you’ve already priced out those “planned trips”, you can use last year’s breakdown to try to predict this year’s total budget!

Here’s how.

Let’s say your upcoming planned trips will cost an estimated $10,000. If we know that last year, planned travel was 30% of the total travel budget, we’ll divide our $10,000 by 30% to get an estimated total budget.

$10,000/30% = $33,333 total travel budget

Of course, this is a very loose estimate. You can get more specific on how much you think each trip will cost.

As part of your travel policy, you should have an easily accessible way to look at data on travel expenses. Use this info to dig a little deeper and establish a basic per-person cost for different types of travel. Conferences, client meetings, sales trips — these might demand different expenses. For example, a conference will probably require less ground travel than a sales trip, since the conference will all occur in one place. Dig into last year’s numbers to figure out which types of travel cost what. You can take those daily costs and see if they fit with your overall estimated travel budget.

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Consider future goals

Looking at past business travel data is a great way to get into the ballpark of a reasonable number, but just because the company spent $X travel dollars last year, that doesn’t mean you want to spend $X this year.

If times are tight, you may need to significantly cut that travel budget. Or, if the team is making a concerted push for loads of new business in Q1, you may need to inflate the sales budget. Can you borrow that money from other pots? Or does the whole budget need to be increased?

Make sure to have a clear picture of company-wide goals that you can consider before proposing your final budget.

Control business travel costs

Having a budget is great, but it’s not so great if you blow past it in the first half of the year. As the travel manager, it’s up to you to keep expenses in check. That can often mean having tough conversations with the rest of your team.

Manager A wants to send his best salesperson to LA for a big expensive conference that could result in a major contract. But Manager B wants to send three of her new teammates to Buffalo for important training. The VP wants to move forward with both trips, but there’s only room in the budget for one.

What do you do? You have an honest conversation with the VP. When faced with your budget constraints, it may turn out that the training can wait until next quarter. If things are going well, maybe he’ll decide that both are important enough that he’ll sign off on the extra expense. In any case, you’ll know that you have done your best to protect your budget.

Always be on the lookout for the best rates, without sacrificing your employee’s comfort or ability to be productive on the trip. Booking the bargain hotel on the outskirts of town for employees to share won’t help your budget much if the employees then have to spend an extra $40 on rideshares every day.

Control your T&E with budgets and without expense reports.

A few tips on controlling expenses:

  • Don’t use a flat rate per diem. Travel and dining are much more expensive in Los Angeles than they are in Buffalo. Consider the costs of a place before providing the employee with their daily expense allowance.
  • Consider a corporate dining group. These groups negotiate discounts with restaurants nationwide. By sending employees to these restaurants, you can save big on dining expenses.
  • Don’t ask employees to book their own flights, and then get reimbursed. If the company is paying for the trip, the company should get the airline miles! You can then use the miles to book future trips, saving more of your budget for any little surprises.

Build in a contingency

If your company will allow it, try to build in a small contingency budget. This would only be for unexpected, can’t-be-avoided trips. It’s not meant to allow for employees to overspend or to allow you to be lax on managing your costs. It’s a separate line item, reserved explicitly for emergencies. Adding a bit of padding to your budget may allow for that last-minute trip that the VP needs to make to smooth things over with an upset customer.

It may seem like a lot of work up front, but once you have a solid business travel budget in place, it will make the rest of your year much more relaxed. You’ll be able to use it as a guideline to make helpful recommendations to the rest of your team as you set priorities and goals for the company’s future.

About the Author: Mike Baker
Mike was Director of Marketing for Lola.com and a former journalist, farmer and teacher.