How CFOs think about travel spend

Advice: I’ve found that any travel forecast that neglects to take an “activity-based” lens will vastly underestimate spend. Furthermore, coming up with an estimate for flights, hotels, and food for each “trip” is helpful for extrapolating across the 13 potential travel weeks per quarter.

II. Where you sit, what you drink

Flight class:

The biggest points of friction in a company’s travel and entertainment policy are typically flight class and alcohol.

There are typically three schools of thought when it comes to where you sit:

1. The “we’ll all sit in coach, and it will make us stronger!” philosophy: I’ve worked at organizations where zero employees were able to book anything other than coach … all the way down to the CEO (unless they were flying private lol).

2. The “count your rungs in Workday” philosophy: I’ve worked at other places where the N-1 of each person determined what they could book. For example, if you are a direct report of the CEO, you could always book business class. If you were N-3 from the CEO, you could book extra legroom. If you were an FP&A analyst, you were lucky to fly in the cargo hold.

3. The “how long is your trip” philosophy: This typically falls into three sub-bucket:

• Length: I’ve worked at places where the flight class is more dependent on time in a seat rather than title. For example, anything over 6.5 hours (conveniently JUST long enough to rule out the cross-country Boston to San Fran trek) could book business class. Anything under that time sat in coach.

• Domestic vs. international: Or if you are traveling over the pond, you could book extra legroom.

• Time of day: Or if you were taking a red eye, you were able to book a class where you could recline the chair enough to sleep (a GENEROUS consolation prize for saving the company an extra night in a hotel room!)

Which one do I like the best? Probably the third philosophy. It’s pretty cut and dried based on where or how long you are traveling. Plus, it’s more humane to our six-foot-four colleagues than the first policy. And it’s less complicated to track and police than the second, where there are ALWAYS exceptions popping up.

Advice: Document your chosen policy VERY clearly. And use your travel booking system as an automated choke point that does the bulk of the work based on employee selections.

Alcohol:

There are a few ways to look at this policy:

1. Number of drinks per person per day: The average I’ve seen this hover at is 2. After that, it’s on the employee’s tab. This is when you see employees do the credit card shuffle a few hours into an outing.

2. Time of day you can order alcohol: Not to be Captain Obvious, but all receipts are timestamped. And at one company I worked at, we were extremely strict about no alcohol before 4 p.m. This was a big point of contention with sales reps, who would bring clients out to steakhouses for lunch. This was also a big point of contention for our employees in Europe, where it’s very normal to wash down your lunchtime sushi with a glass of pinot.

3. Dollar amount per client: I’ve typically seen external per diems run at about 150% of internal per-employee allowances, plus a flat dollar amount for the “event” to do some sort of activity (like an escape room, or something lame like that).

Advice: If you’re going to take clients out for an expensive night on the town, give your accounting team a heads-up. They’ll usually just give you a ballpark number to stay below if you’re doing it for a revenue-generating opportunity. This makes it easier for everyone.

III. Visibility and approval process

I think they’ll write this on my FP&A tombstone when I die someday:

“Sometimes companies have the perception that the best way to reduce travel costs is to get people to get cheaper flights or cheaper hotels and make two stops on the way... We believe that the best way to manage it is by actually helping some trips to not happen at all.”

– Brex co-CEO and co-founder Henrique Dubugras

The best way to curb travel spend is to avoid forcing people to sit in the middle seat on three layovers en route to Detroit, and then sleep on crusty covers at La Quinta Inn. It’s to make sure trips that don’t need to happen don’t ever leave the station. Doing so leaves more travel budget for the more meaningful trips, so employees can sit in an aisle seat (on a Delta flight instead of a Spirit lawn chair) and stay at a Marriott (no offense, La Quinta — the continental breakfast looks wholesome).

When it comes to tracking those trips that do need to happen, where it typically falls off the rails is when there’s a long lag time between swiping a credit card and it getting reflected in the budget.

I’ve spent some cold, hard hours in the likes of Ramp, TravelPerk, Navan (the artist previously known as TripActions), Concur, and Brex over my career. And over the past three years, there’s been a quiet renaissance in the T&E lifecycle.

FP&A teams now have the ability to input a department’s budget, approve or deny trips, see travel charges on both virtual and physical credit cards, and link that spend back (in real time) to dollars remaining in the budget.

This last part — the live budget reconciliation from Brex — is a huge “aha” moment for both FP&A leaders and budget owners alike. Giving functional owners the chance to play “god,” approving and denying specific trips, not only allows them to feel empowered but also creates a culture of accountability where they can check their budgets.

IV. Budget timing and expense submission

Three things you may not have realized about budget timing and expense submission:

1. Even though you booked your flight to LA for a March departure during the month of January, it doesn’t hit the P&L until you actually take that trip.
2. There’s a 90% chance the FP&A team only cares about your quarterly travel spend; the monthly amounts are less important. So if you want to burn through it all in one month, that’s fine. Just keep track.
3. Other than poor performance, travel violations are the #1 reason people get let go. If you are walking a thin line and you think your company is looking for an excuse to tell you to hit the road, don’t mess around with expenses.

This post originally appeared on mostlymetrics.com.