Has your team been traveling lately? I didn’t think so. Managing T&E expenses is probably not a big concern right now. But, as we head into 2021 planning season, it may be something you are having to put a number on right now, and getting it wrong in a big way may mean an unfavorable variance to budget later. So, how should we be thinking about estimating T&E spend for next year?
To start, get a feel for whether the company and its people are willing and able to entertain traveling next year. In some cases, budgets will be tight, and this is one area that you can plan to limit with a broad stroke policy (i.e. only critical travel will be authorized after executive approval). Also, the employees that previously traveled the most in your company may not want to travel in 2021 given the circumstances. These factors may mean that you can keep your T&E budget very low in 2021.
If the company is willing and able to travel, more work is needed to determine what that will look like. Start by breaking out your travel into two buckets: big ticket items and ongoing travel.
Big ticket items:
Compile a list of any major events that your company would normally travel for. Does the company participate in trade shows or industry conferences every year? Does your company host a user conference or summit? Look for the “big ticket” items. Once that list is compiled, check with the team to see whether those events are likely to happen in 2021 or not. In many cases, the organizers will either know for sure or will have a good idea about whether the event will happen in 2021. This will influence your
Ongoing travel is really everything else. This is mostly comprised of individual and small-group travel and would include travel by your sales team to meet customers, executive travel, travel for smaller events and group lunches. To estimate this in 2021, I recommend the following approach:
- Come up with a normalized spend rate for your company. Look at pre-pandemic spend levels by team or group. I like to analyze trends by group based on spend/person or spend/salary. If your headcount in a group has grown or decreased, it should impact your spend in that group.
- Then, look for seasonality. Typically, business travel is lower during the holiday months of November and December and sometimes lower during summer. Check your overall trends to improve your forecasting.
- Since we’re in the middle of a pandemic, phase in your T&E spend over the course of the year. Currently, travel is about 25% of what it was last year.
Look at your recent trends to estimate travel per group as of right now. Use this as your current baseline. Then, think about how to ramp this up over time. Most experts think that a vaccine will initially be available in late 2020, but will be prioritized towards high risk individuals and health care workers at the start. The roll-out to the general public may take another 6-9 months. So, what does that mean for business travel? A vaccine rollout will not be a light-switch of T&E spend. If you think your team will start traveling again once the general population is vaccinated, phase in your travel expenses over time starting around mid-year 2021. A practical “thumb in the air” type estimate may be that travel rebounds to about 40-50% of pre-pandemic levels by the end of 2021.
With a mixture of the above factors in play, come up with a forecasting rationale that makes sense for your business, taking into account big-ticket spend items and normal/ongoing spend. Make your best guess using logic and history in support.
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