Whether you’re a small business or self-employed, when setting up the accounts, you’ll need to have a petty cash fund to cover small expenses or reimbursements. Think of postage stamps, taxi fares and office supplies - things that are impractical to pay by card are made easier by using petty cash.
From keeping it secure to best practices for general transactions, here’s how to use petty cash the right way.
It is important to have Petty cash because having small amounts of money on hand for business expenses means you don’t have to dip into your own pockets for small purchases. Instead, you can handle these needs relatively quickly without having to dash to the nearest cash machine.
You can use the petty cash however you want as long as it’s for business-related reasons. Typically these expenses are inexpensive and not worthy of a check. Here are some common petty cash purchases:
- Stamps and postage costs.
- Taxi fares.
- Office supplies.
- Staff birthday cards.
- Coffee run.
- Lunch for a business meeting.
More and more people are using debit and credit cards for purchases, so the use of a petty cash system is declining. However, it's still essential for any business to make sure you account for all small purchases so that you can deduct them as business expenses.
Just because petty cash amounts are small, it doesn’t mean they don’t require tracking. These little costs can all add up, so it’s important to keep it secure.
Here are some tips on making sure your petty cash is safe and accessible for all your small business needs:
- Purchase a small lockbox - you can easily buy one from an office supplies store or online. Make sure it’s secure with perhaps a combination or key to deter thieves. They are great for storing receipts too.
- Keep your petty cash in a safe place - a lockbox that fits into a desk drawer is advisable for easy access. It’s even better if the drawer has a lock as well.
- Add a petty cash policy section if you employ other individuals so everybody is aware of the procedures and what is an acceptable use for the funds.
- Only you or the designated employee should have access to the lockbox. Petty cash is a highly liquid asset and easily stolen
What Are the Best Practices for Petty Cash?
If you’re self-employed, the responsibility to look after the petty cash fund is all yours. It’s not as simple as just keeping it safe;and you need to replenish the cash, store written receipts and keep an accurate record of the transactions.
- Establish a maximum transaction amount - most people settle on a figure around £25.
- Decide on an amount the petty cash holds - this depends on the number of expenditures you need to cover monthly.
- Include different notes and coins to make it easier to reimburse.
- Check the balance periodically and replenish the petty cash fund back to the approved amount whenever necessary.
- Make sure transactions are accurately documented for tax purposes - be as specific as possible so there’s no doubt that it was business-related.
- Don’t keep replenishing your petty fund without evaluating every so often. If you’re spending lots of money on one particular thing like office supplies, it might be better to bulk buy instead.
Even with these best practices, it can be challenging to keep track of something so small, like petty cash especially when there are more pressing business matters demanding your attention. That’s why we’ve created our helpful templates.
Start Managing Your Business Transactions With Your Very Own Templates
When managing finances like petty cash, quite often the most challenging aspect is tracking everything. If you want a more natural way to budget and document effectively, then we’ve got some templates to help you out.
The pack includes templates for profit and loss, cash flow forecast and more. To get your own, click on the link below.