Taming the Petty Cash Monster
by Toffer Grant, CEO & Founder, PEX Card
Most small businesses have a petty cash fund to pay for small, miscellaneous and occasional expenses such as stamps or supplies for the company lunchroom. But small business owners often underestimate how much petty cash management can get out of control. It is not the same as having extra cash in your pocket — it is a key business expense that impacts cash flow and the company’s bottom line.
Managing Your Petty Cash Fund
Properly tracking your business’s petty cash requires documentation and organization, from the time an employee first requests funds to the time the purchase is reconciled in the books. And there are a number of steps along the way: documenting the request, providing the funds, gathering the receipts, manually recording each transaction and replenishing the petty cash fund as needed.
Too often, employees hit the petty cash “drawer” for more significant and recurring operating expenses, like fuel and equipment purchases, rather than using their own credit cards and submitting expense reports. Then there are missteps in the process, like forgetting to maintain receipts, losing cash and not being able to substantiate purchases. A laissez faire petty cash management system can put your company at risk for fraud and employee theft, not to mention the migraine it will cause if the IRS comes knocking.
So what can you do? Try these tips to keep the petty cash monster from eating your time and money:
- Audit Your Petty Cash Fund: Take a look at the expenses that have been paid with petty cash over the past six months. Pay attention to expenses that are often recurring or over budget, and consider switching to an easier-to-manage system for these types of expenses.
- Create a Petty Cash Policy: Take the time to clearly outline in writing what is and is not an acceptable use of petty cash funds, and share that documentation with every employee. Your policy should also include the proper procedure for requesting and documenting petty cash.
- Record Spending Quickly and Often: Petty cash expenditures impact your bottom line. Plan to record these transactions as quickly as you can. Regularly documenting spending saves you time in the long run and ensures your financial records are always up to date.
- Transfer Recurring Expenses to a Corporate Prepaid Card: Common, recurring expenses, such as travel expenses and supplies for employees on the road, should not be taken out of your petty cash fund. Corporate prepaid expense cards — a relatively new service — can be issued to employees for these expenses. The business or account manager controls how much money goes on each card in real time. With some programs, you can even limit the merchant categories, such as fuel and restaurants, for example, that are available for spending.
- Embrace Technology: Entering each receipt manually can be daunting and tedious. Take advantage of technology that can help you simplify the process. For expenses that can be put on a prepaid expense card instead of taken out of cash, expense tracking can be done in real time and automated with your accounting software. When cash is necessary, use receipt-scanning mobile apps so you don’t have to worry about lost papers.
- Monitor Results: Using your accounting software, create weekly and monthly reports to examine your expenses and revenues. Develop a monthly, quarterly and annual budget based on past expenditures. Regularly monitor your expenses to see if they’re in line with your budget.
Toffer Grant is the CEO and founder of the PEX Visa® Prepaid Card Service, a corporate prepaid card solution used to budget and track employee spending. Learn more here.