This article lists ten best practices that small businesses should implement to manage cash on hand effectively.
1) Establish a Cash Handling Policy
Creating a comprehensive cash handling policy is the first step towards secure cash management and your business’s future. Not only is a cash handling policy critical for maintaining accurate records and cash flow, but 30% of business failures are due to employee theft.
Creating a policy ensures proper record-keeping of all cash transactions and is your number one asset to make sure your internal controls are maintained, and you remain profitable.
Your cash handling policy should include details about cash drawer operations, handling of cash refunds, dealing with overages and shortages, preparing deposits, and security protocols. A policy on its own isn’t enough; ensuring that all employees read, understand, and sign the policy is crucial, thereby acknowledging their responsibilities.
2) Ensure Proper Cash Handling Training
Cash handling is a skill that needs proper training. While some employees might have prior experience, providing training specific to your business procedures is essential. Regular training sessions reinforce the importance of proper cash handling and help avoid common mistakes.
Training should cover all aspects of cash handling, from accepting cash to preparing deposits. It should include modules on handling discrepancies, dealing with counterfeit currency, and maintaining security. It’s also vital to train employees on using cash management technology.
3) Make Use of Cash Management Technology
In today’s digital age, technology plays a significant role in managing cash. Automated cash management systems can minimize errors, increase efficiency, and save on labor. These
systems can handle tasks such as counting cash, creating end-of-day bank deposits, and maintaining a digital record of all transactions.
There are several types of cash management technologies available, including smart safes, integrated point of sale (POS) systems, and cloud-based video surveillance systems.
Choosing the right cash management tools for your business is a strategic decision that requires careful consideration of your unique needs, current challenges, and future ambitions. However, there are a few considerations you should prioritize above all else. Specifically, ensure you understand security and compliance features and integration capabilities.
Security is non-negotiable when it comes to financial tools. Ensure that any cash management tool you consider has robust security features to safeguard sensitive financial data and transactions, both externally and internally. Every person within your organization with access to a tool should have a unique log-in so that access can be audited, and individual users should never have permissions beyond what is required to do their job.
Integration capabilities are also critical to consider. Look for tools that automate manual processes, reducing the risk of errors and saving valuable time. One of the most significant risks for internal fraud is when data is exported from one system and needs to be modified to align with another accounting platform.
4) Maintain Individual Accountability
Each employee handling cash should be held accountable for their actions. This discourages theft and encourages responsibility. Each cash transaction should be documented, and all transfers of cash accountability should be recorded on appropriate forms. Using unique identifiers for employees handling cash, which can be tracked using cash management software, is also beneficial.
5) Implement Dual Custody
Dual Custody is a special application of the principle of separation of duties, where at least two individuals are involved in tasks such as counting large amounts of cash or transporting cash. This practice increases accuracy, reduces the risk of theft, and ensures that mistakes do not go unnoticed.
Implementing dual custody practices encourages employees to check each other’s work, reducing the likelihood of errors. It also discourages internal theft by ensuring that no single individual has complete control over cash transactions.
6) Make Regular Deposits and Reconcile
Businesses should establish regular deposit schedules to prevent the accumulation of excess cash. Cash should be deposited at least weekly, ideally daily, or sooner if collections meet or exceed a pre-determined threshold.
Additionally, monitoring cash received and recorded cash should be an ongoing process. Regular reconciliation acts as a deterrent and a detective control against fraudulent activities. Discrepancies in cash balances can be an early indicator of potential fraud, prompting further investigation to identify and address any irregularities.
Cash reconciliation ensures that businesses report their income and expenses correctly, minimizing the risk of audits and ensuring compliance with tax regulations.
7) Secure Storage for Cash
Cash should be counted and stored in secure locations, out of public view. Cash registers should never be left open or unattended, and cash drawers should only be at the register, at the count desk, or locked in the safe.
Safes play a critical role in storing cash securely. Modern safes have advanced features like time-delay locks and deposit slots for added security. It’s also important to organize your safe properly to avoid cash bags being hidden or stolen.
8) Address Cash Discrepancies Immediately
There will be instances when cash on hand and receipt amounts don’t balance. In such cases, businesses should conduct thorough investigations to identify the source of discrepancies.
Once a discrepancy is identified, it needs to be documented and addressed promptly. This might involve correcting clerical errors, training staff, or sometimes dealing with theft.
9) Implement Security Measures
Implementing appropriate security measures can significantly reduce the risk of theft. This could include video surveillance systems, secure cash transportation methods, and robust locking systems.
Surveillance systems act as a deterrent to theft and provide valuable evidence in case of incidents. Modern surveillance systems offer features like remote monitoring, motion detection, and integration with other business systems.
10) Regular Review and Make Updates to your Procedures
Cash handling procedures should be reviewed regularly and updated to address new risks or challenges. This ensures that your cash management process remains effective and aligned with your business needs.
Updates could involve changes to cash handling policies, adopting new technologies, or changing employee responsibilities. Regular staff training should be conducted whenever updates are made to ensure everyone is aware of the changes.
Conclusion
Cash reconciliation is not just a routine financial task; it is a fundamental practice underpinning small businesses’ financial health, integrity, and decision-making. By maintaining accurate and up-to-date cash records, small companies can navigate economic challenges more effectively and position themselves for long-term success.
By implementing these ten best practices, small businesses can effectively manage their cash on hand, reduce the risk of theft, and enhance their operational efficiency.
Looking to learn more about how you can better implement cash management strategies for your business? Book a meeting with our team for a free, no obligations call to learn more about how Tax Smart CPAs can help your company succeed.