For business owners, every expense counts. From office supplies to marketing campaigns, every penny needs to be accounted for, and understanding the different types of expenses is crucial for budgeting and planning purposes. Learn more about the differences between recurring and non-recurring costs, and how they might appear on your financial statements.
This blog will cover the following:
- A recurring expense occurs on a regular basis, while a non-recurring expense is a one-time or infrequent purchase.
- These two categories of expenses will have different impacts on your budget and financial forecasting.
- The types of recurring and non-recurring expenses your business must pay depends on your size and industry.
What is a recurring charge? If you’ve ever had a subscription, you’re already familiar with this concept. A recurring charge, or recurring expense, is a cost that occurs on a regular basis and is necessary for the ongoing operation of a business.
These are typically essential costs that a business must pay to maintain its daily operations, and may include:
- Rent for office or retail space
- Payroll, including wages and salaries
- Equipment maintenance and repair
- Ongoing marketing
- Software subscriptions and computer support services
- Professional services such as legal and accounting
- Loan payments
Recurring business expenses are sorted differently in each of the major financial statements. Here is how they are usually listed:
Recurring cost on an income statement = indirect costs
Recurring costs on a balance sheet = liabilities
Recurring costs on a cash flow statement = operating activities
Examples of recurring expenses
Your recurring expenses will vary depending on the kind of business you own.
Let’s say you have a small carpet cleaning business. Your recurring expenses might include:
- Rent or lease payments for a small office and storage facilities
- Vehicle payments and fuel for transporting equipment
- Insurance premiums
- Payroll expenses, including wages and benefits
- Supplies such as cleaning chemicals, gloves, masks, and shoe covers
- Uniform cleaning costs
- Marketing expenses such as online advertising
What is a non-recurring charge? This is a one-time or infrequent expense that a business incurs and is not expected to pay again in the future.
Non-recurring expenses can include:
- Purchasing equipment
- Renovating a business location
- One-time, limited-run advertising campaigns
- Legal fees for a one-time project
- Moving expenses
- Vehicle purchases
Big company changes, such as mergers, acquisitions, workforce reduction, and major upgrades, may come with numerous non-recurring expenses, and these can have an impact on net income. However, if these expenses are improving your business, they are an investment in your overall success.
Here is how you will usually see non-recurring costs listed on your financial statements:
Non-recurring cost on an income statement = indirect costs
Non-recurring costs on a balance sheet = short-term liabilities
Non-recurring costs on a cash flow statement = operating, investing, or financing activities
Examples of non-recurring expenses
Back to our carpet cleaning business example, you might see the following non-recurring charges:
- Purchasing new carpet cleaning equipment
- Launching a new marketing campaign for a new eco-friendly cleaning option
- Remodeling business premises
- A one-time training certification
- Development of a new company website
- Legal fees to settle a dispute with a supplier
Understanding the difference: Why this matters?
Understanding the difference between recurring and non-recurring charges can help you create more effective budgets and avoid any last-minute surprises.
Recurring expenses are predictable, so they can help you forecast your cash flow needs over a given period of time. By tracking your recurring expenses, you can ensure that you have enough cash on hand to cover your regular bills and other ongoing expenses. You can then allocate any additional funds toward non-recurring costs or other strategic expenses.
Efficiently manage recurring and non-recurring business expenses with BILL
It is important for businesses to carefully manage both recurring and non-recurring expenses to maintain financial stability. BILL Spend & Expense is a great way to track every kind of expense.
This free software allows you to monitor spending in real-time, preventing overspending and accounting for recurring and non-recurring costs. You can track, manage, and control all expenses in one place.
BILL also auto-categorizes purchases, allowing you to reduce accounting errors and spend less time on expenses. That means more time on the things that matter—like growing your business.