Your small business’ petty cash fund allows you to pay for small operational expenses you’ll incur. Companies use this to pay for travel expenses, immediate utilities payments, postage, and other similar costs. Misuse of this fund will keep your small business short on cash in times when you might need it. Effective management of your company’s petty cash keeps operations going.
These are some of the practices you can implement to manage your company’s petty cash fund effectively.
Determine the Expense Limit
Manage your petty cash fund effectively by establishing an expense limit. This is the maximum amount your employees can use when they draw from this fund and pay for small expenses. Any amount that goes beyond the number you determined should be paid for using another account. This allows you to manage your petty cash effectively.
Designate Approval of Transactions
Small businesses don’t have the luxury of hiring many employees to do specific jobs; however, you can designate one person to take on the additional task of approving petty cash transactions. One person that approves all transactions makes it easier to track expenses and to monitor cash flow.
Establish a Float Amount
Determine a float amount when you open a petty cash fund for your small business. This is the maximum number you keep for your petty cash account. Establishing a float amount allows you to monitor the cash you keep to pay for small operational expenses and the travel costs incurred by your team whenever they go on client meetings or errands.
Determine when to Replenish
After you establish a float amount, you should also determine an amount when you need to replenish your petty cash. This practice prevents your small business from having a cash shortage at a time when you need it the most. This allows you to withdraw from your petty cash account and pay for expedient company expenses.
The person managing and approving petty cash transactions shouldn’t be the same person keeping related accounts. Have them focus on your small business’ petty cash account. Doing so eliminates or at least reduces the mistakes in calculations, approvals, and transactions.
Always Ask for Receipts
When an employee asks for reimbursement, always ask for a receipt. This validates their reimbursement and keeps your petty cash within the float amount. This allows your team to have enough cash for other needs. If an employee can’t provide a receipt, the person managing your petty cash should use their judgment to assess the reasonableness of the amount they want to reimburse.
Use a Voucher System
Use vouchers to record and approve cash disbursements. This enables your petty cash manager to monitor where money goes, who needs reimbursement, and when they need to replenish your company’s petty cash.
Count Cash Regularly
Implement periodic counting of the petty cash fund so that it’s updated. After counting, the cash on hand should be reconciled with the petty cash account. Monitor and record the vouchers and receipts to make sure the amounts match.
Effective petty cash management allows your team to always have enough cash on hand for immediate needs and expenses. The abovementioned practices allow you to monitor and update your company’s petty cash. If ever you need the assistance of bookkeepers to update your books, we at Robookkeeper offer first-rate bookkeeping services for small business owners.