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tips for managing your petty cash

Tips for managing your petty cash

Petty Cash is a small amount of cash that a business has on hand to use for transactions where the amount involved makes payment by anything other than cash a pain.

Whether your small business is a one-person, home-based business or a larger SMB with multiple divisions, you need a petty cash fund for small, daily expenses. If you have a petty cash account and keep track of your transactions out of that account, it becomes easier for you to track tax-deductible expenses, journal entries you should make, and separate personal from business expenses.

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Petty Cash has two uses:

• To provide change for customers paying cash

• To pay for small purchases which require cash (e.g. tea and coffee supplies, parking)

Did you know that “Petty” comes from the French word “Petit”, meaning small? Below are six tips – all of which are easy to implement and maintain – that will help you manage your business’s Petty Cash well.

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1. Define the maximum amount to be used for Petty Cash
Set the maximum amount of money to be held at any time as low as possible in case of loss or theft. You will need to balance the amount to be held against how often you will need to replenish it. When replenishing, ensure that you only take the Petty Cash back to the maximum amount and not past it.

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2. Assign a few people to handle it
The fewer people who have access to your Petty Cash, the better. If you, as the business owner have neither the time nor the inclination to manage Petty Cash, ideally just to give access to two people. By ensuring that the person who replenishes the Petty Cash is not the same person who records the transactions, you will reduce the likelihood of fraud.

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3. Always document the use of it
Use of Petty Cash must be documented in the same way as other business income and expenditure. This means that all corresponding paperwork (e.g. cash slips) needs to be kept. Use a Petty Cash Schedule to record all transactions and to keep your Bookkeeper happy!

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4. Keep the account
Count your Petty Cash regularly. This will be helpful if any unexpected losses occur, because you’ll be able to narrow down when it went happened. Record any discrepancies as soon as they occur.

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5. Replenish your Petty Cash
Only back up to the maximum amount when you think you will be unable to go through a working day without running out.

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6. Be alert
If you suspect that an employee may be stealing from your Petty Cash, restrict access to it and see what happens. If you have proof of a theft from Petty Cash, contact your attorney or call the police before you make any accusations.

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It's a Social Media and digital marketing consultant and owner and founder of LFStudio.com. He is also author and entrepreneur. He helps small businesses to grow, get clients and generate income.

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