How to plan and budget for periodic expenses

An accurate budget is a critical part of running a successful business. After all, your budget helps you understand your cash flow and even the simple act of creating a budget can help you identify areas you can cut back and save.

But, creating an accurate budget is often easier said than done. Sure, it’s easy to budget for recurring costs that you know you have to pay weekly, biweekly, or monthly. But what about those costs that come up less frequently—like once every quarter, six months, or a year?

These are called periodic expenses, and they can totally wreck your budget if you don’t plan for them.

In this article, we explain periodic expenses, compare them to other types of expenses, walk through some common examples, and offer tips for incorporating them into your budget.

What is a periodic expense?

‍You’ll sometimes hear periodic expenses referred to as periodic costs. While they typically come up on a predictable basis, periodic expenses recur so infrequently compared to your regular fixed expenses that they can be easily overlooked when you sit down to generate your annual budget.

What happens if periodic expenses fall under the radar?

It’s tempting to say that periodic expenses exist outside your regular monthly budget, so you can handle them separately. But if you do, you could do damage to your financial goals, especially if you don’t have extra funds put aside to cover the costs.

Periodic expenses may not appear regularly, but they are largely knowable, so it’s important to incorporate them into your budget with other expenses.

Fixed vs. variable vs. periodic expenses

Business expenses come in a variety of flavors, each with its own pros and cons for accounting and budgeting.

Here are the main three types of business expenses:

Fixed expenses

Fixed expenses are monthly expenses that remain stable and predictable regardless of business activity or output. Examples include rent or mortgage payments, car insurance premiums, and loan repayments. You can expect to spend the same amount on these bills from month to month.

Variable expenses

Variable expenses fluctuate in direct proportion to your business activity. In other words, the higher your level of sales or production, the higher your variable expenses. Examples include raw materials, direct wages, and sales commissions. While variable costs are less predictable, they’re still incurred regularly, even monthly.

Periodic expenses

Depending on its nature, a periodic expense can be fixed or variable. The main differentiator is the frequency with which it is incurred. Periodic expenses occur only every few months, whether quarterly, semi-annually, annually, or even less frequently.

Examples of periodic expenses

Periodic costs are very common. In fact, you can probably categorize many of your business expenses as periodic. Some examples include:

• Real estate property taxes: Usually paid twice a year
• Vehicle property taxes: Typically paid annually (once a year) or occasionally semi-annually (twice a year)
• Self-employment taxes: These are due quarterly
• Car registration: Typically required every few years
• Car repairs: Unfortunately, these can be unpredictable
• Equipment and car maintenance costs: These may be inconsistent
• Certain insurance premiums: Some insurance premiums, like car or life insurance, are charged once or twice a year
• Financial fees: These include annual credit card fees and similar costs
• Business travel: These might include annual or semi-annual conferences and periodic client meetings
• Professional licenses and certificates: These may need to be renewed annually or every couple years
• Professional memberships: Typically renewed annually
• Software subscriptions: May need to be renewed annually, bi-annually, or according to a different schedule depending on your contract
• Bulk purchases of raw materials: Including components and other supplies, which you may only replenish a few times a year‍
• Audits and inspections: These usually occur infrequently

Strategies for managing periodic business expenses

The problem with periodic expenses is that their irregularity makes it easy to forget them when creating your quarterly or annual budgets. Then, when they pop up, you can be left scrambling to fill the hole blown in your budget. But it doesn’t have to be this way—and the solution might be more straightforward than you’d expect.

Here are six strategies for managing periodic expenses in your budget:

Identify your periodic expenses

The first step to understanding your periodic business expenses better is knowing what they are. Review past financial records and create a list of all the periodic expenses you’ve incurred in the past. Make sure to list each expense's cost, frequency, and due date. This may take some effort, but it will be time well spent in the long run.

Plan for seasonal changes

Periodic expenses are sometimes impacted by the seasons. Maybe your conference season is a certain time of the year, or you might plan on giving out holiday bonuses to your staff. When making your list of past expenses, also account for things you know could be coming due to seasonal changes or even just scheduled costs down the line.

Crunch the numbers

Next, before you can begin incorporating periodic expenses into your budget, it’s time for some math.

1. Add up all of your period expenses you’ve documented for the year.
2. Divide this number by your budgeting period. If you budget monthly, divide this number by 12; if you budget quarterly, divide by 4.
3. Add this number as a line item in your budget moving forward to account for the periodic expenses.

Add a buffer fund to your budget

Following the steps above is a great way to estimate your periodic expenses for the year, but it isn’t an exact science. Your business may see higher periodic costs in some years than others.

With this in mind, it can be a good idea to add a 5-10% buffer to your periodic expense budget each year. Let’s say you budgeted $5,000 for yearly periodic expenses. If you add 10%, your budget line should actually be $5,500. The extra emergency funds help absorb some of the potential fluctuations.

Invest in the right tools

While you can perform the steps above manually by reviewing your budget line by line, that likely isn’t the most efficient route, especially for larger businesses. The good news is that there are tools that can help.

Most expense management software, for example, can automatically categorize expenses. If your expenses are properly tagged and classified, you can automatically exclude recurring and one-off costs from your expense report before diving in.

Likewise, a vendor management tool can help you automatically track your SaaS licenses, contracts, and subscriptions, which may go overlooked if you’re locked into long-term, multi-year contracts.

Analyze and iterate

Once you’ve determined your line items for periodic expenses, review them regularly with the rest of your budget. Schedule a review time cadence to ensure you analyze your budget, stay on track, and anticipate any issues. Treat it like a living document that you can adjust over time to meet your business needs.

Benefits of planning for periodic expenses

If the goal of creating a budget is to predict your business’s spending with as much accuracy as possible, then you need to be accounting for periodic expenses. Doing so can help you:

• Prevent a budget shortfall that might otherwise send you scrambling to cover
• Gain greater transparency into where your business spends money over the long term
• Shop around for larger periodic expenses that you know are likely coming up

Manage your periodic business expenses with Ramp

Accurately tracking your business expenses is the first step to planning for periodic costs, and the right tools can make this process a lot simpler. Ramp's modern finance platform is designed to help you do just that—whether they're recurring, periodic, or one-time expenses.

Ramp’s expense management software streamlines how businesses track and manage their spending, making financial planning, budgeting, and reporting more accurate and efficient. Automated business expense categorization instantly classifies expenses, saving valuable time and reducing errors.

Interested in learning more about how Ramp can help you reach your financial goals? Try an interactive demo and see why Ramp customers save an average of 5% annually.