The art of accurately calculating the cost of business travel
The organisation of business travel is complex, with many moving parts. For those new to the world of business travel, or perhaps established SME that travel now and then, managing travel expenses is challenging – it’s an area of business travel that almost everyone struggles with.
The goal is to accurately work out the expenses associated with a business trip – and therefore prepare the business financially. To do this, you first need to understand what a travel expense is.
A travel expense is any cost associated with travelling for the sole purpose of conducting business-related activities. This includes the ordinary and necessary expenses of travelling away from home for business – but not personal or excess spend.
Once you understand the definition of a travel expense and what’s considered business travel, you can estimate how much a trip will cost your business.
What is considered business travel?
Before you get started calculating, it’s important to define exactly what travel is ‘business travel’. This is especially relevant in today’s corporate travel climate, where employees might extend a business trip by a couple of days for personal reasons – commonly referred to as ‘bleisure’ travel.
Generally, employees are on a business trip if they’re primarily conducting work-related tasks outside of their regular and agreed upon place of work. These tasks could be as simple as visiting a trade fair, or as complex as a two-week buying trip to China.
There are several different factors that can influence a definition of business travel and any associated expenses:
- The amount of time employees are away from home – is it substantially longer than an ordinary day’s work and are they required to spend the night?
- Distance travelled – number of kilometres travelled not including the distance to and from home and work
- The definition of home being the regular place of work instead of a family home – unless you’re a home-based business – or if you conduct business at more than one site, e.g. you have an office in Wellington and a distribution centre in Auckland
- The type of work conducted when on a business trip and away from home
When it comes to combining work with leisure – i.e. you extend a trip that is primarily for business by a few days to ‘see the sights’, the general rule is that the ‘work’ part of the trip is considered to be business travel, and therefore the ‘leisure’ part is personal, and not business travel.
Business travel on weekends can be a little trickier to define, and often comes down to what is in your business travel policy.
If employees are required to work on the weekend and away from home, they should be reimbursed accordingly, based on what their employment agreement is with the company. They might finish with their work commitments on a Friday and choose to stay for the weekend – this would then be considered as ‘bleisure’. If for some reason, they’re unable to return home because of circumstances out of their control, and must stay the weekend, that part of the trip might be covered by insurance.
What is considered a business expense?
With business-related travel come business travel expenses.
For an expense to be considered a business travel expense – and therefore tax-deductible – it needs to meet a few general criteria.
The expense needs to be what is deemed as ordinary, necessary and reasonable to operate the business and complete employment duties. Lavish or unreasonable expenses, like renting a fancy sports car instead of a comfortable sedan, is more than what’s required for a business trip – unless of course, your traveller is a sports-car racer.
The expense must be incurred for business purposes or be a cost associated with employees needing to stay overnight away from their regular place of work.
Here’s a list of expenses which are generally considered to be business travel expenses:
- Transportation costs: airfares, airport shuttles, public transport, taxi fares, rental cars or mileage if using a personal vehicle while travelling for business
- Accommodation costs: hotels, motels, bed and breakfasts
- Laundry and dry-cleaning costs
- Regular day-to-day expenses like food and drink
- Travel insurance cover
- Communication costs: mobile and roaming expenses, internet access, any rental equipment
- Costs associated with work-related tasks: conference tickets, new client acquisition expenses, business meeting expenses
There are some expenses which will not be considered business travel expenses:
- Unreasonable expenses: if an expense isn’t necessary, and business can be conducted on the trip without it, then it’s unreasonable.
- Any personal expenses: including any family travel costs incurred by spouses and children who travel with you, or entertainment costs outside of the ordinary, e.g. purchasing concert tickets because a band happens to be playing while you’re in town.
Working out how much a trip will cost
Now it’s time to get into the nitty-gritty of business travel expenses – how to estimate the total cost of a business trip.
Calculating the required budget for a business trip is critical to keeping your organisation in the green. It’s an integral part of planning and organising business travel – but it can also become quickly overwhelming if you don’t have a smooth process in place.
Step 1: Track your expenses
If this is your first time working out how much a trip will cost your business, then the most immediate step to take is creating a travel expense spreadsheet – or investing in travel expense management software – to keep track of and organise your costs.
Step 2: Research your destination
Your destination, and the time of year you travel, will greatly influence your travel expenses. You’ll find they vary depending on where you’re headed – for example, a popular tourist destination – as well as what month you travel in, and for how long. Where you depart from, if not the same location as you arrived in, will also influence your expenses.
Travel tip: booking in advance can significantly reduce the cost of big-ticket expenses like flights and accommodation.
Step 3: Travel documentation
Don’t forget to include in your estimate any special travel document requirements like visas or vaccinations when travelling overseas.
The next steps involve researching and calculating the different expenses you expect while on a business trip. Breaking down factors that influence travel expenses results in a more accurate estimate. It’s often the smaller expenses that add up quickly and can cause you to go over budget without planning.
Step 4: Transportation costs
Determine all forms of transport you’ll need to get to and from your destination, as well as any travel required when you arrive. This includes airfares (remember to add luggage, meal, entertainment and parking costs), any mileage for car travel, any vehicle rentals, public transport (buses, trains, ferries), and taxis.
Step 5: Accommodation costs
One of the best ways to accurately estimate the cost of accommodation is to contact your preferred hotel for a quote. Make sure it not only includes cost per night for the duration of your stay, but also any additional fees for parking, WiFi, meeting rooms, taxes, entertainment, laundry and breakfast.
Repeat this process with as many different accommodation options as you need to until you find a quote that sits within your budget.
Step 6: Day-to-day expenses
Do some research and estimate a daily budget your business travellers can spend on food and drinks (including snacks). Then, multiply that amount by the number of days you’re travelling, and the number of travellers.
Travel tip: Check out restaurant menus online so you can adjust food costs based on the prices of nearby cafes and restaurants.
Step 7: Additional travel expenses
Finally, add into your travel expense spreadsheet any miscellaneous travel expenses that you can think of that you need to take into consideration.
Step 8: Add everything together
Add your costs together to reach an estimated total. Remember – this is only an estimate, so it’s good practice to include a small contingency – just in case an unexpected expense comes up.
Why it’s important to have a travel policy
All good business travel management starts and ends with a good corporate travel policy.
A travel policy is a set of guidelines created specifically for your business that outlines how travel managers and employees plan and organise their business travel. Having a policy in place is important for several reasons:
- Duty of care: an effective travel policy will help you keep business travellers safe and ensure they adhere to company travel guidelines.
- Makes business travel easier: simplifies the process for both your business and travellers – essentially automating and optimising expense management.
- Helps reduce travel costs: it allows you to control costs associated with business travel by clearly defining what is and isn’t a business-related travel expense.
If you don’t have a travel policy in place, or your current one needs a little love and care, here are some top tips for improving your travel policy.
Expenses in your travel policy
Creating and implementing a travel expense policy will provide your business with the guidelines it needs to manage and process business travel expenses.
This policy will define two things: a) the employee reimbursement process for business travel-related expenses, and b) how your travellers can spend business money while travelling, i.e. what is and isn’t a business travel expense.
Having a travel expense policy will help you set employee expectations, align with business financial goals to keep your bottom line on track, define roles and responsibilities for expense management, enable you to build reciprocal vendor relationships, and help you prevent or flag any fraudulent behaviour.
Communicating with your travellers about expenses
At the end of the day, you can do all this work on building a travel policy and estimating travel expenses, but none it will add any business value – unless you communicate it to employees who travel for work.
Employees will often turn their noses up at the word ‘policy’ so it can be a challenge sharing this type of information widely – let alone keeping track of compliance. It’s as much for their benefit as it is for your role as travel manager, and for the business.
For new employees, make sure educating them on your travel policy is part of their on-boarding process. It’s important they understand their roles and responsibilities when travelling on behalf of the company, and they need to know you have their best interests – as well as their safety – at heart. This can do wonders for employee satisfaction.
For current employees, make sure policies are up-to-date, clear and accessible. It’d be easier to teach a dog new tricks than attempt to get your employees to read a 300-page policy document.
Without a doubt, the most effective way of increasing policy compliance and automating travel expense management is by taking advantage of the technology that’s available.
Anything that can help you travel and manage associated expenses smarter is a worthwhile investment – and in the world of corporate travel today, there’s no shortage of cool travel apps and solutions to choose from.
No more surprises – estimate your travel expenses
Estimating and keeping track of business travel expenses don’t need to be mammoth tasks. With a little research and elbow grease, you can work out how much a business trip is going to cost your business – and proactively prepare for any surprise expenses you might face along the way.
From there, you can estimate travel expenses over a longer period, consider an expense management solution, and work to encourage more time and cost-efficient business travellers.
If the idea of numbers and policies still makes little beads of sweat pop up on your forehead, bring an expert on board and work with a professional travel management company like Corporate Traveller. They’ll get you on top of your business travel expenses in no time!