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Types of Selling Expenses:. Transportation (car lease, maintenance, gasoline, insurance, air fare, taxi fare, shuttle service, etc.) Meals, Lodging Entertainment, Gifts Office Supplies, Communications Expenses (laptops, faxes, phone calls). Selling Expenses.
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Types of Selling Expenses: • Transportation (car lease, maintenance, gasoline, insurance, air fare, taxi fare, shuttle service, etc.) • Meals, Lodging • Entertainment, Gifts • Office Supplies, Communications Expenses (laptops, faxes, phone calls)
Selling Expenses • Sales reps are among the few employees allowed to spend the company’s money. • Lodging & Meals Costs: • National Avg. = $44,000 • New York City = $85,500 • Corpus Christi, TX = $32,000 • These figures do not include transportation, entertainment, or other types of selling expenses.
IRS Regulations • Only 50% of entertainment expenses may be deducted. • Only 50% of business meal expenses may be deducted. • Only $25 per year, per recipient may be deducted for business gifts.
Unlimited Expense Plans • There is no limit on the total or individual expenditures incurred by reps. • Used for major accounts or when there is significant cost difference between territories. • Makes it difficult to forecast selling costs.
Limited Expense Plans • There is a limit placed on the amount that will be reimbursed for each expense item. • Management studies past expense records, and lodging and restaurant directories by territory or by city.
“Padding” the Expense Account: • Occurs when limited expense plans are used. • Reps who do not spend up to the limit in one category allow the extra reimbursement to “carry over” to cover another expense. • IRS says: Reimbursements above and beyond incurred expenses should be reported as income on one’s personal tax return.
What type of sales rep usually covers his own expenses? • Reps on straight commission. • Allows greater control of net profit. • You don’t have to explain your expenses (as much!). • You may deduct some types of expenses from your personal income tax return.
A Sound Expense Plan: • “Produces no net gain or loss for the rep.” • You should bring home the same amount of pay whether you have been working at home or on the road. • “Produces no curtailment of beneficial activities.” • The expense plan should not be so rigid that it prevents reps from engaging in activities that benefit the sale.
Methods of Expense Control: • Training—Reps are taught what expenses are and are not allowed; they are reprimanded or dismissed when abuse occurs. • Credit Cards—The company reimburses only credit card charges from a pre-approved list of hotels, restaurants, etc. (this controls where the rep eats, stays, etc.) • Travel Manager—A manager (not the rep) makes all travel plans and reservations centrally; the company knows in advance what the charges will be.
Transportation Alternatives: • The rep uses his own vehicle and is reimbursed for the expense (a flat rate per mile is the most popular reimbursement method). • The rep uses a company-owned car (the IRS frowns on large depreciation deductions for expensive co. cars). • The rep uses a leased vehicle (lease payments are 100% deductible as business expenses).
