What are periodic expenses?: A guide to budgeting and business planning

Maintaining an accurate budget is critical to running a successful business of any size. Your budget helps you understand your cash flow and expenses, 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 expect to come in weekly, biweekly, or monthly bills. 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 wreck your budget if you don’t plan for them properly.

In this article, we define periodic expenses, compare them to other types of expenses, provide common examples, and offer strategies 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 monthly payments that they’re sometimes easily overlooked when you sit down to generate your annual budget.

Understanding the three types of expenses

There are three main types of business expenses to be aware of when planning your budget: fixed, variable, and periodic. Each has its own pros and cons for accounting. Here’s a quick guide to understanding fixed, variable, and periodic 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 payments and car insurance premiums, and loan repayments.

You can expect to spend the same amount on these bills month to month, making them easy line items to include in your budget.

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. They aren’t as easy to plan for as fixed expenses, since the costs can fluctuate each month, so they just require careful tracking to make sure you don’t overspend against your budget.

Periodic expenses

Although relatively common, periodic expenses can be the trickiest because a periodic expense can be fixed or variable. The main differentiator is the frequency with which it’s incurred. Periodic expenses don’t occur every month. They occur quarterly, semiannually, annually, or even less frequently.

A periodic fixed expense may be something like an annual subscription or membership that is more predictable. In comparison, a periodic variable expense could be maintenance or repair costs that are more dependent on the situation and timing.

Below, we offer strategies for taming periodic expenses in your budget, but first, let’s review some examples.

Periodic expenses examples

You can probably easily name many of your periodic expenses off the top of your head because they come up fairly regularly in the course of doing business. You may already categorize many of your business expenses as periodic.

Some of the most common examples of periodic expenses in business include:

• Real estate property taxes: Usually paid twice a year
• Self-employment taxes: These are due quarterly
• 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 semiannual conferences and periodic client meetings
• Equipment and maintenance costs: These may be inconsistent
• Bulk purchases of raw materials: Including components and other supplies, which you may only replenish a few times a year‍
• Professional licenses and certificates: These may need to be renewed annually or every couple of 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
• Audits and inspections: These usually occur infrequently
• Holiday gifts: For staff or clients
• Vehicle property taxes: Typically paid annually (once a year) or occasionally semi-annually (twice a year)
• Car registration: Typically required every few years
• Car repairs and car maintenance: Unfortunately, these can be unpredictable

Strategies for managing periodic business expenses

It could be easy to forget periodic expenses when creating your quarterly or annual budget, due to their irregularity. But when they do pop up, you might be left scrambling to fill the hole blown into your budget. The solution is likely more straightforward than you might expect, but it requires careful planning.

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

1. Identify your periodic expenses from past data

The first step to understanding your periodic business expenses better is knowing what they are. Review past financial records and bank statements to create a list of all the periodic expenses you’ve incurred in the past year or more if you’re able. 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.

2. 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 may 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.

3. Crunch the numbers

Next, before you can begin incorporating periodic expenses into your budget, it’s time for some math. Use cash flow forecasting to anticipate how much to set aside:

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

4. Add a dedicated 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 annual periodic expense budget. 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.

5. Automate by investing 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.

6. Review, 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. Your financial life isn’t totally static, so treat it like a living document that you can adjust over time to meet your business needs.

Benefits of budgeting for periodic expenses

If your budgeting goal is to predict your business’s spending with as much accuracy as possible, you need to account for periodic expenses. Doing so helps you:

• Prevent a budget shortfall
• Gain greater transparency into your business spending over time
• Plan for and potentially negotiate costs on larger expected periodic expenses

Manage your periodic business expenses with Ramp

Accurately tracking your business expenses is the first step in planning for periodic costs, and the right tools can simplify this process. Ramp's modern finance platform is designed to help you manage all your 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.