How should you handle petty cash at your startup?
Petty cash is a term for a small amount of cash kept on hand at your startup to handle small expenses, like tipping a delivery driver or buying lunch. Petty cash used to be more common, and it’s not done very often anymore, for good reasons:
- Cash is difficult to track. The IRS requires receipts for expenditures over $75, and people often don’t get receipts for cash purchases or things like tips and gratuities. And over time, the petty cash disappears without any record. That’s an accounting weakness. Think about how difficult it’s going to be to track your company’s cash position on your balance sheet and cashflow statement - and you’d better do a good job getting those receipts into your accounting software!
- Petty cash is a slippery slope. It’s very easy to start using petty cash for expenses unrelated to the business, like paying for dry cleaning or buying lunch. On a bigger scale, we’ve seen situations where petty cash is used to pay larger personal expenses, like an office manager using petty cash to pay personal credit card bills.
- You’re a fiduciary. As a founder, you’re responsible for company expenses. You need to send a clear message to employees that spending is monitored and things are being done the right way, even for small amounts.
Your startup doesn’t need petty cash
There’s no real need for petty cash any more. There are a number of credit card options that your startup can take advantage of, and it’s easy to create virtual credit cards with dynamic limits for employees. You can use cards that are part of cash management systems so you can review spending on a dashboard, and all the charges can be exported to your accounting system. Your accountant can review expenses, and your startup is protected. So our advice is to stay away from petty cash. If you have questions about petty cash or credit cards for your startup, contact us.