You’ll never know when your team might need cash to pay for immediate expenses such as taxi fare, utilities bills, minor repairs, and others. In such cases, it’s convenient to have petty cash to cover these costs. Many small businesses have a petty cash account, but some mismanage it. This leads to cash shortages, theft, misappropriation, and other similar problems.
These are some of the common mistakes when it comes to the handling of petty cash.
Not Specifying Types of Expenses
Some small businesses make the mistake of allowing employees to take from their petty cash fund regardless of the expense. This is a common mistake you should avoid because it can lead to cash shortages when you need it the most. Establish a policy that states the type of allowable expenses when withdrawing from your petty cash fund. These can be taxi fares, train tickets, food for visiting clients, payment for utility bills, and others. Creating a list of allowable expenses prevents employees from draining your petty cash and allows you to reduce business expenses.
Unable to Establish a Maximum Amount
Proper handling of petty cash requires establishing a maximum amount. Don’t make the mistake of not establishing a max petty cash amount. It shouldn’t be too high to tempt employees from stealing and it shouldn’t be too low as to need constant replenishment. Reviewing the daily expenses of your company allows you to determine a feasible amount.
Not Assigning a Petty Cash Custodian
Avoid making the mistake of not hiring a petty cash custodian. This mistake may cost you a lot of money and confusion in reimbursing employees. Designate one person to approve transactions and vouchers. This eliminates or at least reduces the mistakes they make when handling your business’ petty cash. They can monitor where your money goes, and which employee spent x amount of money for a client meeting. They keep your records updated and make sure all receipts are accounted for.
Not Evaluating Spending
It’s easy to lose track of the amount of money in your petty cash fund. This can be problematic because of possible untethered spending of your employees or theft. Evaluate your transactions to determine where your money goes. Does your cash go to company expenses or excesses? Your employees might be buying too many office supplies you don’t need or drawing from your petty cash for non-company related trips. You’ll be able to identify suspicious and inconsistent transactions whenever you evaluate your petty cash fund frequently.
Failure to Keep Receipts
Missing receipts can cause headaches once you start monitoring expenses and reimbursing employees. The actual amount of your petty cash might be different from your logs. One way to make sure the amounts match is to ask your employees to keep receipts. Doing so makes it easier to track spending, reimburse employees, and determine when to replenish your petty cash.
Failure to Implement a Voucher System
Some owners fail to implement a voucher system when it comes to the handling of petty cash. A voucher system makes it easier to monitor who took money from the fund and where they used it. A system also makes the job of your petty cash custodian easier. They can review the possible cost before approving or denying it.
Learn about these mistakes and avoid them when handling your small business’ petty cash. Keep your petty cash at the right amount so that your team can pay for immediate company needs. If you need assistance with updating your accounting books, we at Robookkeeper can provide you with first-rate and affordable small business accounting services.