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Step 5: Leave out Nonrecurring Income/Expenses

If you are going for HISTORICAL cashflow, you’ll include in your numbers nonrecurring income and expenses. Perhaps you’ll mention them in the write-up.

But if you are working on coming up with a number for RECURRING Cashflow Available, find and take out (or leave out) the nonrecurring income and expenses.

The easiest way to spot nonrecurring items is to compare two years side-by-side, or better yet, three years. Notice anything that is significantly higher…or lower…than the other years.

See why two years doesn’t work for this? With only two, you cannot tell by looking which is the more normal amount.

Another way is to just pay attention to what things are called. Moving expense, for example, is probably not an annual item. In fact, if it is maybe we have a problem!

So here are some possibles:

  •  Alimony/Child Support (if will quit soon)
  •  Contract or Note Receivable (if almost done)
  •  Capital Gains (unless typical and recurring for this borrower)
  •  IRA/Pension (if a one-time lump-sum distribution)
  •  Insurance or legal settlement


  •  Disaster repairs
  •  Capital Losses
  •  Start-up, Merger or Acquisition Costs
  •  Bad Debts (if unusually high…but consider if a red flag)
  •  Settlement fees (but understand the impact of the lawsuit)
  •  Loan payments if loan almost paid off (unless they are likely to replace it with similar amount)

If the nonrecurring amounts are already in your numbers (you started with a bottom line figure and are adjusting), add back the expenses and subtract the income. If not in yet, pass.

What other nonrecurring income or expenses do you look for?

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.