Several years ago a friend of mine was involved in an advertising route sales business. He and a few employees produced custom advertising materials and every other week he would go on the road delivering his products and collecting payment. He would usually leave broke, but arrive back home flush with cash and checks.
His sudden wealth encouraged his family to live high on the hog for a few days, leaving just enough money to meet payroll and purchase business supplies. This went on for a few years until some tough times came. Never having ‘stashed some cash’ his business floundered and was sold for pennies on the dollar. Dave Ramsey, in EntreLeadership, states that “Start-up home-based businesses often forget to do even the most basic and primitive proper accounting.” Big mistakes like that have sunk many businesses, but not managing the ‘Petty’ cash can also do a lot of damage.
Keeping track of where your money goes helps you know if you are really making a profit or not. When you’re starting an office cleaning business from home you probably know where every dollar goes, but as your business begins to grow and you take on employees, keeping track of the cash is as important as tracking annual sales revenue. Unless you keep accurate records you’ll never know if someone’s been skimming from the pretty cash box.
By setting restrictions on petty cash purchases, you ensure that larger purchases are still going through appropriate channels. Set a limit as to how much can be taken from petty cash at one time and be sure and limit access to only a select number of employees.
You may also want to limit what types of things can be purchased with petty cash. Ideally, the money in this fund is used for incidental purchases and emergencies. For example, coffee and small office supplies.The maximum amount of money you keep in the petty cash box will vary from business to business, but it’s common to keep anywhere from $50 to $200 on hand. Any time an employee takes money from petty cash, it must be recorded. The employee taking the money should sign a record noting the withdrawal amount and date, and he should return the receipt and any change the same day.
At the close of every day, the amount of cash in the box plus the sum of receipts should equal your starting cash balance. Some businesses will only use petty cash for purchases a few times a month while others might use it almost daily. Reconcile and replenish petty cash funds weekly if you use it often. Otherwise, an audit once a month will probably do.
It’s never a good idea to leave cash out for someone to take, no matter how much you trust your employees. Cash within reach can be too tempting for anyone, so keep it in a cash box that’s locked tight and kept out of sight. Not everyone needs to know the combination or have a key. By only allowing managers or supervisors to access the money, you can keep better tabs on your money and maintain control over how it’s spent.