What Is a Non-Core Item?
A non-core item is an engagement considered to be outside of business activities or operations that are the main revenue source of the business. Non-core items are considered to be peripheral or incidental activities, while core items are considered central to operations. Often, businesses will outsource non-core items to firms that specialize in these activities. This is especially true for smaller firms.
In accounting, non-core items can also relate to interest, taxes, and other expenses.
Although non-core items are not critical for the overall success of a business, they often still provide a valuable contribution.
Understanding Non-Core Item
Non-core items are prevalent in most businesses. These are the activities that make the business run, even though they are not directly related to producing the service or product which the business sells to generate its revenue. Some examples of non-core items are human resources, data processing, supply-chain management, and logistics. Many firms that specialize in these areas and businesses who wish to offload these tasks to free up manpower to focus on other things can outsource these tasks.
Even if non-core items are considered separate from revenue-producing business operations, they may still represent a substantial part of a business's health and often represent a significant portion of the business's expenses. If non-core items are not reported with the same level of transparency, then stakeholders are not being given the entire picture.
Non-core items are usually most valuable to a company when they can be sold to raise cash. In particular, some organizations will sell their non-core items in order to pay down higher-interest bank debt.
- A non-core item is outside of the primary business activities or operations that are the main revenue source of the business.
- Non-core items may represent a substantial part of a business's health and often represent a significant portion of the business's expenses.
Examples of Non-Core Items
Non-core items can include real estate, commodities, natural resources, currencies, high yield bonds, and options. However, exactly what types of assets are considered non-core will vary from one business to another. For example, a real estate investment trust would consider its real estate holdings as a core asset, while an oil company may not.
Core Items vs. Non-Core Items
How do you differentiate core from non-core businesses? In a construction company, for example, the core business is the construction of buildings and roads. However, a large construction company will usually also have an element of the business that focuses on making and managing real estate investments. Alternatively, in the case of an oil or mining company, a division in charge of the discovery and natural resources.
Identifying non-core items is not fixed across all businesses. Whether something is core or non-core, depends on the nature or type of business. However, by simple comparison, the core business is focused on delivering the core customer experience. It is a “profit center” of the company.
Meanwhile, a non-core item may have a strategic view, operating instead on a day-to-day basis. It is not involved in the day-to-day functions of the main company.