How to budget for non-recurring expenses
How to budget for non-recurring expenses is a challenge many small business owners face, even when they're on top of their monthly bills. From equipment repairs to software upgrades, non-recurring costs can quickly drain your business's cash reserves if you're not prepared. Here's how to get ahead of these surprise expenses.
Know what you're dealing with
The first step is identifying which expenses are truly non-recurring. This means first identifying all your recurring expenses — for example, monthly rent and utilities. Non-recurring expenses are less predictable — think computer replacements, emergency repairs, or marketing for a new product launch. They're necessary costs that pop up occasionally but don't follow a set schedule.
We often see business owners mistake irregular recurring expenses (like quarterly tax payments) for non-recurring ones. While both need planning, they require different budgeting approaches. True non-recurring expenses are usually those one-off costs that support your business growth or handle unexpected situations.
Building your buffer
We recommend creating a dedicated savings buffer for non-recurring expenses. Start by reviewing your past bank statements and receipts from the last two years. Look for those occasional big purchases and categorize them. Common categories include:
Equipment and technology updates
Professional certifications and training
Emergency repairs and maintenance
Legal or consulting services
Add up these expenses and divide by 24 months to get your monthly savings target. If you're a new business and don’t yet have historical records, we suggest setting aside 5-10% of your monthly revenue for unexpected costs until you have more historical data to work with.
Smart planning strategies
Instead of letting non-recurring expenses catch you off guard, try these approaches:
Create a rolling forecast — Update your projections monthly, incorporating any new information about potential future expenses.
Use technology wisely — Set up a separate savings account and automate monthly transfers for your non-recurring expense fund.
Plan for timing — Some non-recurring expenses tend to cluster around certain times, like year-end equipment purchases or spring facility maintenance.
Common pitfalls to avoid
It’s easy to make mistakes when it comes to non-recurring expenses, especially if you’re just starting out. We see many business owners face these common pitfalls:
Draining operating capital to cover unexpected costs
Relying too heavily on credit cards
Avoiding planning entirely with the hope they won’t face any unexpected expenses
Another common error is underestimating the true cost of non-recurring expenses. Remember to factor in not just the direct cost but also related expenses like installation, training, or temporary workflow disruptions.
Looking ahead
As your business grows, your approach to non-recurring expenses should evolve too. Keep detailed records of these expenses and review them annually. This helps you spot patterns and adjust your savings strategy accordingly. You might find that some non-recurring expenses become regular enough to warrant their own budget line item.
Need help getting a better handle on your business expenses? Learn more about our bookkeeping services for small businesses.