Starting Up: Budgeting for Small-Biz Travel

By Diana Ransom

WHEN THELMA M. MCCALL recently sought out $35,000 in start-up capital for her patented board game "Shapes and Numbers," she knew she'd also have to secure funding for business travel.

"To get [a company like] Mattel to manufacture the game, I'll need to cover time off and travel fees," says the former middle-school teacherrom Arlington, Va., who plans to take her game on the road to find willing toy manufacturers. "It will generate quite a bit of money as far as royalties are concerned. I just need to get it in front of the right people."

Traveling for business is rarely cheap. And according to the American Express annual Global Business Travel Forecast, prices are going up. The average cost of a domestic trip including airfare, car rental and hotel stay is expected to increase 6% to $1,110 in 2008, up from $1,047 this year. The price for international trips is forecast to advance 7% to $3,171 next year, up from $2,966 in 2007.

Budgeting for travel expenses is particularly burdensome for small businesses, which typically have fewer resources than their larger counterparts. And it's usually the first to go during an economic downturn. But for many budding entrepreneurs, putting in face time with clients and customers is paramount. In-person meetings can help set you apart from more established competitors — and, as in McCall's case, potentially land a lucrative business deal.

With some businesses, says James J. Holtzman, a financial planner at Legend Financial Advisors Inc., in Pittsburgh, "you can't replace the human touch. You have to be able to look people in the eyes."

To get a handle on your travel budget, here's a primer:

The Power of Planning

The more travel dates you can predict in advance the better, says Holtzman. It's easier to budget for expenses you know about. Plus, if you book your travel arrangements a certain number of days in advance, you can usually find discount prices.

It's also a good idea to know how to get around in the city you're visiting. Figure out whether it is smarter to take a cab or jump on a train. Knowing the cab rates in the city you're visiting will help you understand and plan for such costs, says Holtzman. If cab prices are high or if you have far to go, "it might even make sense to hire a limo." That way, he says, "you can get some privacy and the cost differential may be negligible."

Mapping out cheaper places to exchange U.S. currency in advance of foreign travel can also cut down on costs. Or, check out your bank's automated teller machine policy abroad. For example, Bank of America is part of the Global ATM Alliance, which includes eight banks in nine countries including the U.S. and offers customers free access to more than 30,000 ATMs.

Make reservations at restaurants within your price range in advance of your trip. That way you won't have to endure long waiting times or seek more expensive alternatives. Plus, in places such as New York or Chicago, "sometimes you can't get in; if you're trying to entertain a client that can be embarrassing," Holtzman says.

But even if you do plan out your trip, business travel is going to cost you, says Mari Adam, a financial planner in Boca Raton, Fla. After a recent conference in Seattle, in which airfare, a hotel room and registration set her back more than $2,000, she says, "I probably won't do that every month." But, she added, meeting with business contacts and colleagues in similar situations made the trip worth it.

Still, "if youaren't judicious and you spend too much in the beginning, you could run out of money," Adam says. Keep in mind, these types of business-generating strategies don't always pay off right away. It's like a pharmaceutical company investing in research and development: "There can be a long incubation period, in which you might not see evidence of its benefits for some time," she says. With business travel, as with advertising and other marketing costs, "you have to be patient and plan for the long haul," she says.

Business Expense Deductions

According to the Internal Revenue Service, business owners may deduct part or all of the unreimbursed cost of meals, airfare, transportation and hotel stays while traveling. These expenses are usually only deductible if they are deemed to be "ordinary" and "necessary" and your business concerns require you to travel out of town overnight.

"The biggest issue for small businesses is record-keeping," says Bill Fleming, a managing director of private-company services at PricewaterhouseCoopers in Hartford, Conn. At the end of each trip, write purchase descriptions on the back of receipts and staple them to an expense-reporting form, he suggests. If you have employees, develop a policy for substantiating receipts. "Be a real taskmaster about receipts," he says. The good record-keeping will save time, expense and frustration in the event the IRS questions a return. For record-keeping instructions, check out IRS guidelines here .

Travel Rewards

To keep better track of expenses, use a business credit card to buy meals, airline tickets and other costs associated with travel, suggests Greg Rosica, a tax partner in Ernst & Young's Personal Financial Services Practice in Tampa, Fla. "It makes keeping track of purchases easier and more manageable," he says. For more on business credit cards, see our story

If you're planning on doing a fair amount of traveling, look into business credit cards with travel rewards, suggests Holtzman from Legend. For instance, Delta Air Lines, U.S. Airways and United Airlines partner with credit-card companies to offer airlines miles; other cards offer hotel discounts or rebates on gas. For a list of various travel and airline rewards credit cards go to IndexCreditCards.com . Business owners who plan to carry a balance, however, are wise to pick a card with the lowest annual percentage rate, rather than the best travel-rewards program.