Guide to Set a Small Business Travel Budget

Travel can be critical to the operations of all kinds of businesses, including small companies. In some industries, such as construction, travel is pretty much a necessity. In other cases, business travel can enhance your bottom line by allowing for one-on-one time with clients or providing employees with opportunities to attend training and industry networking events.

Regardless of the nature or frequency of travel within your organization, small business owners often face unique challenges and considerations when it comes to managing travel. These include establishing and enforcing travel policies, streamlining travel approvals and reimbursements, and ensuring that your company isn’t overpaying for transportation, accommodations, and meals.

Business travel budget basics

When establishing a small business travel budget, it is critical to understand the two most common expensing options: per diem plans and accountable plans. These plans are considered standard in the areas of business taxation and accounting. Your choice depends on several factors, and you should talk to your accounting manager or tax professional before making a decision.

1. Per diem

The per diem option is simple and straightforward: Your employees are reimbursed for their expenses on a per diem (per day) basis. This is a flat amount that covers the cost of travel including meals, transportation, incidentals, and accommodations. The amount is set by the IRS and depends on the location or locations of travel. Per diem is favored by a lot of businesses because of its simplicity and the relatively low risk of making accounting or tax-reporting errors when workers are reimbursed at a flat rate. On the other hand, per diem can be somewhat inflexible, which can result in the need for additional approvals for expenses above the IRS’s per diem rate.

2. Accountable plan

In an accountable plan, your employees will submit itemized lists of their expenses for reimbursement. This approach provides significant flexibility to employees who may travel for long periods of time,  do a lot of business entertaining, or  travel to areas where the cost of living is extremely high. There is, however, a greater risk of making tax or accounting mistakes with this approach, which could lead to future headaches for both you and your workers.

Each option has its advantages and disadvantages, including accounting complexity and the time it takes to prepare expense reports. This is why it is important to review your options with a professional, as you may find yourself trying to use a system that isn’t suited to your operations.

Establish a travel policy

After you’ve decided on how you plan to manage travel expenses and reimbursements, it’s time to establish a travel policy. A well-written policy will clarify expectations regarding business travel and simplify reimbursements to employees. Over time, clarity regarding business travel will help to control costs and the amount of time your accounting staff will have to spend on handling reimbursements.

Enforcing the policy

It is also critical to enforce your company’s travel policies. Failure to do so can cost your company in several ways:

• Could result in your actual travel expenses exceeding your budget.

• Staff  spending additional time managing expense reports or trying to address non-compliance issues.

• Employee morale can take a nose-dive when there is a conflict over reimbursement amounts.

• Both employer and employee  may face negative tax consequences as the result of reimbursements that don’t conform to current accounting principles or tax law.  

Everyone on your staff should be trained to understand travel policy. Those in supervisory positions should receive additional training to prevent approvals of non-compliant travel arrangements.

Use travel tech tools

If you don’t have an in-house travel specialist, and most small businesses don’t, business travel tech tools are a must. Mobile apps and virtual payment cards allow your team to research accommodation options, hotel amenities,  book and pay for hotels and meals, and  conform to your business’s travel policy. These systems can also be used to seamlessly prepare expense reports, allowing for quick reimbursement and compliance with tax regulations.

CLC Lodging offers comprehensive business travel management services to businesses of any size. These services include pre-negotiated room discounts, streamlined booking and payment options, assistance with travel policy adherence, and technology that can help ensure the safety and well-being of team members. Become a member today!