Even with the introduction of other payment methods, cash is still king, more so aspiring entrepreneurs working hard to take their business off the ground. Don't forget that cash management is a vital aspect of managing your own business.
The main benefit of managing your cash flow is avoiding the costs of being out of cash (including failure to pay obligations as they fall due or to meet emergencies). Its aim is to minimize your cash stock out costs, transaction costs, bank charges and interest expenses, and to maximize the return on your cash balances.
A good internal control system over your cash will help you to prevent fraud or theft, achieve an accurate accounting of your cash transactions, and keep adequate but not excessive cash balances. Cash is your most liquid asset and the most susceptible to theft, but if your internal controls are adequate, theft without detection is virtually impossible.
Do the following to establish controls over your cash:
• Separate the function of handling cash from the keeping of accounting records.
Employees handling cash should not have access to your accounting records; accounting staff should not have access to your cash. This subdivision of duties discourages fraud, because collusion among employees would be necessary to conceal an irregularity.
• Prepare a control listing of your cash receipts at the time and place money is received, and require that all cash receipts be deposited daily in the bank.
For cash sales, this listing may be a cash register tape created by ringing up each sale on a cash register. For checks received through the mail, task the employee assigned to open the mail to prepare a control listing of incoming checks. At the end of the day, the manager or supervisor should compare the list with the total cash and checks received, and then have these deposited in the bank.
• Make all your disbursements by check—except for small amounts that may be paid out of your petty cash fund.
Never draw checks payable to cash (these can be deposited or cashed by anyone). A check drawn to a payee requires the payee to endorse it on the back before it can be cashed, hence providing permanent evidence on the person receiving the money.
Pre-number your checks and issue them in numerical sequence. You should also verify the validity of each of your expenditures before issuing a check. When a check is signed, the invoice and supporting documents should be perforated or stamped “Paid” to prevent the possibility of it being presented later in support of another check payment.
You may supplement your system of internal control by obtaining a fidelity bond from an insurance company. Under a fidelity bond, the insurance company agrees to reimburse an employer for proven losses resulting from fraud or embezzlement by bonded employees.
This article was originally published in the August 2003 issue of Entrepreneur Philippines.