Even a home-based business needs a petty cash fund to cover the cost of unexpected or unbudgeted expenses. Here's how to start one.
Examples of items paid for from petty cash might include postage due on incoming packages or stamps for outgoing mail; delivery fees; office supplies; or a flower fund for special events like employee weddings or funerals.
Home-based businesses might not incur as many small-item expenses, but there are bound to be times when cash is needed to pay for things that credit, a debit card, or a company check cannot. While these occasions are few and dwindling with the influx of online and streamlined banking services, there are still occasions when cash comes in handy, as in an electrical failure or local purchase.
To start your home-based petty fund, keep in mind a few things like the following:
1. Include petty cash as a line item on your business budget. Cash is still considered a job-related asset and must be accounted for in the bookkeeping ledger. Maintain clear records to the penny, and replace any funds used for personal expenditures.
2. Store the cash and coins in a secure place. That may be a safe deposit box at your home or at the bank, as long as you or another employee has a key for ready access. It's probably a good idea to keep at least a small amount of perhaps $50 in your home, with other cash at the bank if desired.
3. Set up a system for recording use of the petty cash fund. In other words, you don't want an employee taking out a few dollars and forgetting to write it down somewhere. Keep a special notebook or online spreadsheet for this purpose, and tell employees to write down the date, the amount, and the purpose before taking the cash.
4. Prepare a list of acceptable uses for the fund. If anyone working with you doesn't know what the account is for, he or she may spend it on things that should be purchased with credit or check, such as computer software or a printer cartridge. Go over the list with anyone who has access to the account, and invite questions as they arise in the future.
5. Periodically review your petty cash fund. You may want to do this monthly or every three to six months. Check to see how much cash is being used, for what it was used, and whether the current amount is adequate or needs to be adjusted. For example, if you note that the cash was used up by the end of the first month, the amount may need to be doubled or tripled to make it last longer, with a subsequent review deciding whether the adjustment was suitable or temporary.
Petty cash plays an important role in your home-based business, whether operated by you solely or by another person or two who may work with you full- or part-time. Establish guidelines for using, accounting for, and replenishing the fund so that the cash is applied in the most effective way.
