Best Guide for Tracking Recurring Expenses

When you first set up your business, you’re not likely to have too many recurring expenses, aside from rent for your premises, if you have one. Fast forward a few months, and you might have financed some equipment. Then you add a few cell phone plans for your sales team, and of course, there are recurring expenses to host and manage your website.

Before you know it, you’ve got a mountain of subscriptions and contracts to manage, and you’ve got preauthorized debits going off your company account throughout the month. You think you have a handle on it, but then you forget a bill, and don’t put enough money into that account to cover it. So, you get charged a fee, and interest, and it all just gets out of control!

If you miss too many payments because you’re not on top of paperwork, you might even find that key accounts get put on hold. We all know what a big spanner in the works it can be when you can’t order goods or services when you need them!

There is an easier way to track your recurring expenses, stay tuned.

What Are Recurring Expenses?

Recurring expenses are business related costs that you have to pay at regular intervals. That usually means you pay them once a month (although some might be quarterly or annual.) They’re usually also the same amount every month, like rent or subscriptions. But sometimes, like utility or cell phone bills, they can fluctuate.

Most recurring expenses are essential to your business – like rent, utilities, bank charges, and bills for equipment and vehicle finance. Others might not be essential, but certainly make things easier – like legal retainers or subscriptions for cloud-based services.

While there may be many nuances to what a recurring expense is, they are all bills that you will have to pay regularly, as long as you have a subscription or contract with the creditor.

Unlike one off payments, recurring costs are usually for things that you really need to keep your business running, and that you can’t easily switch to another supplier. If you don’t pay your rent for a while, or make payments on your delivery vehicles, you could have much bigger problems on your hands!

So, while all expenses are important, and deserve your attention, the recurring ones really need a little extra TLC.

What is the Difference Between Recurring and Non-Recurring Expenses?

Understanding the disparity between recurring and non-recurring expenses is crucial for effective financial management and decision-making.

Recurring Expenses:
Recurring expenses are costs that repeat at regular intervals. These are essential for ongoing operations and typically occur monthly, quarterly, or annually. Examples include rent or lease payments, utility bills, salaries, and subscription services like software licenses or insurance premiums.

Non-Recurring Expenses:
Non-recurring expenses are one-time or irregular costs that do not repeat regularly. These expenses often arise from unexpected events or specific projects. Examples include equipment purchases, renovations, marketing campaigns, legal fees, and travel expenses for a conference or event.

Why is it Important to Track Recurring Expenses?

Automation can transform how businesses handle regular expenses. Pairing expense management automation with reliable payment card platforms provides thorough control over recurring costs, making it an astute option for small and medium enterprises prioritizing cost-effectiveness. Here, we explore the numerous advantages of automating expense management and payments:

• Centralized Oversight: Automation consolidates expense tracking and management, fostering efficiency through centralized platforms. Some solutions offer intuitive dashboards for real-time visualization and analytics, empowering informed decision-making.
• Real-time Monitoring: Automated solutions provide unparalleled visibility and control, particularly when paired with payment card platforms. They track and report expenses instantly, enabling insights into spending activities. Payment cards add an extra layer of control by allowing preset restrictions on card usage.
• Recurring Expense Analysis: Automation tools swiftly identify and categorize recurring expenses, including subscriptions and frequent suppliers, streamlining financial analysis. They’re equipped to handle diverse recurring expenses, from fluctuating utility bills to complex, multi-supplier arrangements.
• Complexity Management: Advanced automation, featuring machine learning capabilities, adeptly handles intricate recurring expenses. These include varying monthly bills, expenses divided among multiple suppliers, asset depreciation, and those with diverse tax rates.
• Scalability and Integration: Flexible automation software grow seamlessly alongside your business, maintaining efficiency even as operations expand. Integration with existing ERP, payroll, and best accounting software enhances visibility and control over recurring costs.
• Accessibility and Mobility: Cloud-based automation empowers businesses to manage recurring expenses from anywhere, anytime, whether through online platforms or mobile devices. This flexibility ensures continual oversight, regardless of geographic location.

Utilizing automation enables businesses to streamline expense management, leading to enhanced financial projections and facilitating greater resilience and growth.

What are the Types of Recurring Expenses?

Recurring expenses are regular costs that occur at predictable intervals, forming a significant part of a business’s ongoing financial obligations. Understanding the various types of recurring expenses is crucial for effective financial management. Here are some common types:

1. Fixed Expenses

These are recurring costs that remain constant each billing cycle. Examples include rent or lease payments, insurance premiums, and subscription fees.

2. Variable Expenses

Unlike fixed expenses, variable expenses fluctuate from one period to another. Utilities such as electricity, water, and heating are typical variable expenses for businesses.

3. Personnel Expenses

Salaries, wages, and benefits for employees constitute recurring expenses for most businesses. These costs may vary depending on factors like overtime, bonuses, or commission structures.

4. Loan Payments

Regular payments towards loans or credit lines are recurring expenses. This includes payments for mortgages, vehicle loans, or lines of credit used for business purposes.

5. Maintenance and Repairs

Businesses often have recurring expenses related to maintaining and repairing equipment, machinery, or facilities. These costs ensure the continued operation and longevity of assets.

6. Subscriptions and Memberships

Fees for software subscriptions, professional memberships, or industry associations are recurring expenses that businesses incur periodically.

7. Marketing and Advertising

Costs associated with ongoing marketing campaigns, advertising placements, and promotional activities are recurring expenses aimed at maintaining brand visibility and attracting customers.

8. Utilities and Services

Apart from variable utility expenses, businesses may also have recurring costs for services such as internet, phone lines, security, and cleaning services.

9. Taxes and Licenses

Regular tax payments, license fees, and permits are recurring expenses that businesses need to budget for to ensure compliance with regulatory requirements.

By identifying and categorizing these types of recurring expenses, businesses can better forecast cash flow, allocate resources effectively, and maintain financial stability over time.

How are Recurring Expenses reported in Financial Statements?

Recurring expenses are a fundamental component of a company’s financial statements, typically categorized under operating expenses. These expenses, such as rent, salaries, and utilities, occur regularly and are necessary for ongoing business operations. They are detailed in the income statement, where they are subtracted from the company’s revenues to determine its net income. Additionally, disclosing recurring expenses in financial statements provides transparency to stakeholders, enabling them to gauge the company’s operational costs and financial performance accurately.

Proper reporting of recurring expenses is essential for stakeholders to make informed decisions about the company’s financial health and sustainability. By accurately documenting these expenses in financial statements, investors, creditors, and other stakeholders can assess the company’s profitability, cash flow, and operational efficiency. Clear disclosure of recurring expenses ensures transparency, instilling confidence and trust in the company’s financial reporting and management practices.

How do Recurring Expenses affect your Budget?

Recurring expenses, often the largest portion of monthly financial obligations, significantly impact budgets. They encompass various forms like rent, utilities, insurance, and subscriptions, requiring consistent payments. While essential for daily living, some can be adjusted to align with financial priorities, allowing room for savings or investment.

Analyzing recurring expenses is crucial for budget management. Identifying essential versus adjustable expenses enables reallocating funds effectively. For instance, reducing subscription services can free up funds for savings, debt repayment, or investment goals.

In financial planning, recurring expenses play a pivotal role. Integrating them into long-term goals ensures budget alignment. Adjusting expenses to prioritize savings facilitates progress towards objectives like homeownership. Moreover, consistent payment of recurring obligations can bolster creditworthiness, enhancing future financial opportunities. Efficient management of recurring expenses fosters balanced budgets, goal achievement, and long-term financial security.