Improving your budget process for business travel expenses

It’s that time of year again, budgeting season (odd how it keeps happening). This is often the most stressful time of year for folks in finance and accounting. In addition to our regular jobs, we now need to haggle with department heads over their expenses, push growth for more revenue while simultaneously cutting marketing spend, and hope that, at the end of the day, the board actually approves it all. We certainly can’t avoid budgeting season, but there are things we can do to make it better. 

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Travel expenses often make up a significant portion of corporate card spend each month. Using the correct method to budget these expenses will help lead to a smoother process and a more accurate model. We discuss three methods below.

Bottoms up budgeting:

One method, often used at larger companies, is commonly referred to as Bottoms Up. Model everything: the average cost of flights, the number of flights expected each month, the cost of hotels and expected nights, and the daily food expense. This will obviously take a considerable amount of time, both for the finance team to build the structure and for department heads to make accurate estimates. Finance teams can reduce turnaround time from other teams by inputting default assumptions based on the prior year’s spend. 

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Including all the drivers means you know exactly what leads to the variance relative to your budget. If you are over budget, you can see whether that was driven by more flights than expected, more expensive hotels, or something else. The method is preferred in corporate settings or for professional service providers who travel extensively. The ability to explain the variance in minute detail is valued more highly than the time required to include each driver. Startups or smaller companies often don’t have the luxury of time and must turn to other methods. 

Tops down budgeting:

Naturally, the alternative to bottoms up is tops down. This tends to be more of a brute-force approach and is much simpler. You take the average people expenses per headcount from the last year, adjust up or down depending on the revenue forecast, and you are done. In this case, time is considered more valuable than precision. Significant variances will be much more difficult to explain, but if the company has fewer than 50 employees or travel expenses are minimal, this method is ideal. 

Scientific estimate budgeting:

The final method combines the prior two and blends the best of both. You start the same as Tops Down with the average spend per headcount but with some specific adjustments. First, every department is different. Sales and marketing will likely travel the most, while the finance team may travel only once a year for the annual offsite. Having a modern ERP in place, particularly one well integrated with Ramp and your HRIS, can make this a quick calculation. Second, adjust for seasonality. Since many tech conferences occur during late summer and fall, the sales and marketing budget should be higher in those months. Conversely, travel is less likely during December and January due to holidays. 

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Third, ensure the travel expenses are in line with the hiring plan. This comes naturally in the bottoms-up method but is easier to forget when calculating from the top down. 

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The scientific estimate provides you with the greatest level of specificity while also accurately valuing the time of the finance team and the department heads.

Simplify your budgeting process by centralizing travel expenses 

Ramp Travel consolidates employee travel expenses into one platform to help finance teams control travel spend from the start. So when it’s time for budgeting, you know your employees’ travel expenses are in one place, properly prepared for analysis, and synced into your ERP. 

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Not only does Ramp Travel help you budget and forecast better, but it can enable you to set and enforce a travel policy that automatically creates guardrails on per-diems, flight, and hotel rates, preventing out-of-policy spend.  Ramp even enables you to apply specific rules to different teams. 

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The Rillet + Ramp powerup

Regardless of which method you choose, combining Rillet and Ramp can reduce the time you spend preparing for the annual budgeting cycle. Rillet is the next-gen ERP and natively integrates with Ramp, so your expenses always align with your financial statements. 

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Like Ramp, Rillet believes that quality accounting data is the foundation of successful companies. When finance leaders connect Ramp to Rillet, their existing accounting rules automatically transfer, enabling the team to see Ramp transactions directly in the general ledger in a drillable format.

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Many legacy GL systems lack department functionality. This forces teams to spend extra time mapping expenses and crowds the financial statements with needless GL accounts. In Rillet, departments set up in Ramp are directly mapped into the ERP, ensuring each expense is categorized directly and can be accurately estimated for the following year. 

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Users of Rillet + Ramp report over 6 days saved in their close process, freeing up precious time that can now be spent planning for next year. 

Closing thoughts on budgeting for business travel

For every budgeting cycle, always collaborate closely with your department heads. The sales leader may expect to travel more this year than prior as the company targets more enterprise accounts. The operations leader may want to schedule quarterly offsites with their team. As finance folks, we won’t know if we don’t ask. 

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It is often said that all models are wrong, but some models are useful. To ensure your model is as useful as possible, use the proper method for your business. Good luck with this budgeting season, and if we can be helpful in any way, please reach out!

This was written in collaboration with Stephen Hedlund, the head of finance at Rillet, a next-gen ERP software explicitly built for complex SaaS and AI companies. Rillet natively integrates with your Ramp, CRM, HRIS, payment processors like Stripe, Avalara, and many more. Check them out here.

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