Managing the Money

Why Worry About Managing the Money at this Stage?

Managing the cash that flows in and out of your small business is a critical aspect of managing your small business.

A Definition

Cash is a term used in accounting to identify money and other negotiable instruments that can quickly and easily converted into money. Negotiable instruments would include things like personal, company or bank cheques, and postal notes.

Cash is not only the most liquid asset in a business, it is also the most portable and the hardest to trace. It can easily be transferred from one person to another quickly and easily, but cannot be specifically identified as the property of a particular individual. Because of these unique characteristics of cash, it is the asset that is most commonly the subject of fraud or misappropriation.

Managing the Money

The control and proper use of cash is an important management function in any business, but particularly in a small business.

Although cash is handy to have and vital if you want to stay in business, it is not considered to be a productive asset as it does not generate any revenue.

As with many things in a small business, you need to find a balance between not having enough cash to continue operating and holding too much.

Any cash that is accumulated beyond that needed to continue your daily operations (i.e. your working capital), should be invested into some type of income producing asset.

Cash Controls

Controls are methods and procedures used to protect your cash assets and to ensure that your accounting records are accurate. Typical internal controls implemented in small businesses include:

• Establishing clear lines of responsibility
• Separating record-keeping duties and cash handling duties
• Installing mechanical or electronic devices like cash registers and
• Purchasing adequate insurance against loss or theft

Setting Up Your Cash Management Systems

Before you can actively manage the money within your small business you will need to set up the mechanisms to receive, pay out and store your cash.

Topics of interest include:

• Banking for small business
• Setting up a business bank account
• Small business accepting credit cards
• Accepting card payments
• Accepting payments online

Actually Handling the Cash

Because cash is such a liquid asset it is important to have a good internal control system for handling cash and cash transactions. Your system must enable you to protect cash on hand as well as for handling your cash receipts and cash payments. The cash control procedures for your small business will include:

• Control of cash receipts
• Control of cash payments and
• Managing a petty cash fund

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