You have to spend money to make money. On the way to growing and expanding your business operations, you may find many occasions where a little universal lubricant is needed to keep the wheels of progress in motion.
Petty cash is your business fund set up to meet all minor expenditures and other costs of doing business. However, it’s important to remember your personal credit should be separate from your business credit. Petty cash covers things like office supplies, cards, and flowers for customers, reimbursing employees, paying for catered lunch, etc. Maintaining a reliable stash of petty cash is critical to your business operations.
Here are some of the most important tips to remember to keep a well-appointed petty cash cache:
Set a maximum amount
One good way to determine the right amount of petty cash to keep on hand at all times is to consider your history of operations. What kind of expenses have you faced regularly and how often do you face an emergency and what number of resources have been required to restore your regular process? If you see that your current amount of petty cash sources is insufficient for the task at hand, it may be a good time to reevaluate your expenses and create a higher petty cash allowance.
Scheduled Replenishment
It is not efficient or possible to replace used petty cash every time it is needed. To keep your refill dates fluid and functional, plan your refill schedules around your use and projected depletion of petty cash. You never want to end up in zeros, so consider the average frequency at which your petty cash supply drops under 50%. Always make sure that your petty cash supply is restored at the end of the year to take full advantage of tax benefits.
Appoint a Cash Custodian
The custodian of your petty cash fund is responsible for collecting and maintaining a record of all receipts and records of the Petty Cash box. Make sure you choose a reliable person with meticulous record-keeping skills for this task. There may be cases where more than one custodian is needed for an especially busy petty cash system. As a general rule, the fewer hands that are in the box, the more functional it will be in the long run. The primary custodian will be responsible for handing out cash as needed, collecting receipts, and returning change. The secondary custodian will have the task of keeping records and verifying that the proper amount of petty cash is always in the box.
Keep a log of all receipts
Keep a full account of all receipts, packing slips, email confirmations, and all other documents pertaining to the petty cash fund. Without these documents, you will not be able to prove that these costs are business-related and therefore tax-deductible. Some choose to keep these receipts in a shoe box, but they can also be kept in digital format.
Reconcile Often
The best way to ensure that there are no accidents of thievery is to have a clear plan to reconcile your petty cash fund as often. The custodian should make this a part of their routine, but it is highly recommended that a second person conduct further reconciliations to keep all control from being centralized. Having these internal control measures is a great way to discourage theft. This secondary reconciliation should be done right before you write out a check to replenish the petty cash fund.
As you can see there are many ways to manage your petty cash so it serves your business well. By applying the tips and pointers mentioned here, you can avoid the many headaches that can arise from having an unreliable petty cash system.
