If you are the owner of a new small company, you may not be familiar with the many ways that you can use client entertainment to increase your profits. Client entertainment, which consists of activities such as meals, wine tastings, sports events, and short vacations, are items that you pay for in hopes of developing a better working relationship with your clients. In many industries, small client entertainment perks are expected, but it is important that you know how to leverage them to your benefit.
Understand How Entertainment Expenses Relate to Your Taxes
Entertainment and marketing expenses can often be written off on your taxes. Generally, half of all entertainment expenses can be claimed, which can lower the amount of taxes you owe each year. It is important that you keep track of your entertainment expenses and save receipts from all of your entertainment purchases. This will allow you to maximize your tax benefits, which can make client entertainment an affordable marketing tactic.
Clearly Define Marketing Entertainment and Sales Entertainment
There are two main types of client entertainment that you will likely engage in. The first is marketing entertainment, which is done to secure new clients. This type of entertainment is meant to increase awareness of your brand without necessarily resulting in a sale. The other, and more common, type of entertainment is sales entertainment. This is entertainment that lead directly to a sale. It is important to separate these two types of entertainment expenses because any entertainment expense related to a sale should be taken out of the profit margin for that sale before offering bonuses or commissions to an employee for the sale.
For example, if an employee took a client out for a $100 dinner in order to secure a $2000 sale, they should only receive a commission on $1900. This will encourage your employees to use sales entertainment wisely.
Use Entertainment Time to Advance Your Projects
While part of entertainment should be building a relationship with your client, part of it should also be spent working. Before any client entertainment event, you should come up with a list of talking points that you plan to discuss with your client. For example, you should be prepared to mention new products or services during a client dinner or to ask direct, pointed questions to advance a current project during a sporting event you are paying for. This legitimizes the expense for tax purposes while making it worthwhile for your company.