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Whatever type of business you run, it makes sense to keep a small supply of cash in the office to deal with the little expenses every business incurs. Known as petty cash, this small fund is often more essential for the smooth running of your business than you might think. However, these cash expenses can very quickly get out of hand if you do not manage them properly. Like all other aspects of your finances, you need to stay on top of your petty cash if you want to remain in control of your spending.

Here’s everything you need to know about petty cash, and the best ways to track your cash expenses to keep them under control.

What is petty cash?

Petty cash is a small cash fund which is kept in your workplace, usually in a locked box, drawer or safe, from where it should never be moved. Your petty cash fund can be anything from $30 to $300 or more, depending on the size and needs of your business, but it is only used for miscellaneous, small purchases which need to be made quickly, saving you the trouble of using your company credit card in instances where it is easier to use cash.

Some examples of typical cash expenses might be:

  • Paying for a working lunch for a few colleagues
  • Reimbursing an employee for supplies they have purchased
  • Paying for a taxi to a meeting

These small expenses are regular occurrences in the day-to-day life of any business, so you will regularly find yourself thankful that petty cash is kept in the office! And there are many important advantages to your business in keeping a supply of petty cash:

  • It discourages overspending on small items, as there is only a limited amount of cash available, and people are always inclined to spend less when they actually have to hand over physical money instead of making invisible transactions such as via a credit card or smartphone;
  • It means there is always a supply of cash available for office emergencies;
  • It makes it more likely that staff will get reimbursed for supplies they pay for out of their own pockets, as they can be paid instantly instead of having to submit expense reports, which they can forget to do;
  • It makes bookkeeping easier, as it consolidates multiple purchases into one entry.

However, it is important to set up and manage your petty cash account correctly; otherwise, your finances can quickly get into a mess.

What is petty cash

How to set up a petty cash account

There are several stages to this process:

1. Establish your number of petty cash sources

The first thing to determine is how many sources of petty cash you will need. A small business is only likely to need one source of petty cash; but if you are a medium-sized enterprise with various departments or more than one site, it can make sense to have several different petty cash sources so everyone’s cash expenses can be covered quickly and easily.

2. Start your petty cash account

You will need to add a petty cash account to the assets section of your chart of accounts and decide how much money should be in your petty cash float. This will depend entirely on the size of your business and the number of cash expenses you are likely to incur.

You can start your fund by writing a check to “Petty Cash” from your company bank account, and cashing the check. The check should be for the amount you have decided you need as a float. This cash should then be placed in a locked box, drawer or safe in your office, and it should not be moved from this location.

3. Appoint your petty cash custodians

You don’t want everyone in the office to have access to the petty cash fund. Cash thefts from workplaces by employees do sadly happen, and the money will be much easier to trace if fewer people have access to it, should anything go missing. This also creates an atmosphere of less suspicion within your staff team.

Ideally, only two people should have access to the petty cash; or two in each department if you have multiple petty cash sources. One of these custodians should be responsible for replenishing the petty cash float. The other will have responsibility for entering all petty cash transactions into your bookkeeping system. In a small business, one person can take on both responsibilities, but it makes the system more secure if there are two people with separate roles.

4. Devise a company petty cash policy

At this point, it makes sense to devise a company policy for petty cash. This should be put in writing and made available to all employees, so they are clear on their rights and responsibilities. If you want to make sure your petty cash policy covers all the essential issues and is workable within employment law, you can have it checked by a legal or HR advisor before issuing it.

The policy should clearly state points such as:

  • Who can issue petty cash and what the responsibilities of these people are;
  • Which types and amounts of expenditure can be covered by petty cash, with a clear limit on the amount permissible per transaction;
  • Receipts must be provided for every cash expense before anyone can be reimbursed.

This last point is particularly important. Without receipts, it becomes impossible to track your cash expenses, so your petty cash account can fail to balance.

Balanced petty cash account

Keeping your petty cash account balanced

The first entry in your petty cash account will be a debit of the amount of your float. This amount should also be entered as a credit into your company bank account.

From here on, every amount of petty cash given out needs to be exchanged for a receipt. The amount of cash plus receipts in your petty cash box should always add up to the amount of the original float.

When the petty cash needs replenishing, all the receipts in the box need to be entered as debits in your expense accounts under their various categories, such as office supplies, refreshments or taxis, for example. Then all the receipts need to be added, and the total amount should be entered as a credit into your petty cash account.

Following this, you can cash a company check made out to “Petty Cash” for the total amount of the receipts. This will bring your float back up to its original level, and the check amounts should be entered as a debit in your petty cash account and a credit in your company bank account.

This replenishment process is an ongoing part of a successful petty cash system, and if your expenses are tracked properly, it will always balance.

Options for tracking cash expenses

The main problem with cash expenses is that they are easily forgotten about, and much harder to track than card expenditure. But if you want to keep your accounting accurate, tracking cash expenses is essential. There are several different ways in which you can do this.

1. A paper system

This is the old-fashioned way of tracking cash expenses. Every petty cash transaction is entered in a ledger, and the totals are added up by hand. Hardly anybody still uses this system, as it is so time-consuming and prone to inaccuracies due to human error. There is also the risk of your accounts getting lost or damaged, which can have a serious impact on your financial reporting and tax returns.

2. Spreadsheets

Many small businesses still use spreadsheets to track their cash expenses. Receipts and petty cash amounts are entered manually into the spreadsheet. You can then use functions and formulas, so the spreadsheet will work out the totals for you.

This is a lot easier and more accurate than a paper system, and it stores your records more securely, but it still involves a lot of manual input, which is extremely time-consuming. It also contains the risk of figures being entered inaccurately, so your petty cash can fail to balance.

3. A simple expense tracker

One of the simplest ways for small- to medium-sized businesses to keep track of their cash expenses is by using expense tracking software. This comes as a feature on some software solutions, including Billdu. Using a system like this has several advantages, as it can scan receipts, so they are automatically entered into your system, making it much easier for you to keep your petty cash balanced.

As most of these software solutions are now cloud-based, it ensures that all your cash transactions are recorded safely and securely in an organized way, so the information can easily be accessed whenever you need it.

4. Accounting software

The top accounting software packages are incredibly sophisticated these days. Programs like FreshBooks, QuickBooks, and Sage are designed for large organizations, so they can automate most of your bookkeeping processes, including the vast majority of your petty cash accounting.

However, these solutions come at a price. To access all the features you need, you usually have to pay a large amount of money every month, putting them out of the reach of most small businesses.

Tracking cash expenses

How Billdu can help you track cash expenses

Billdu is designed to make your working life easier by offering simple solutions to the issues that all businesses face. One of these is tracking cash expenses. Billdu offers a simple expense tracker, which includes a receipt scanner so that you can record your cash expenses on-the-go.

What makes Billdu super-convenient is that it is a cloud-based system, but it does not just work on a PC – it also comes with apps for Android and iOS, so you can scan receipts on your smartphone or tablet as soon as you make the transaction. These will then automatically be entered into your system. This cuts down on the chance of receipts getting lost or damaged, and also makes it much easier to work out your cash expense totals, keeping all the information you need highly organized in the cloud.

In addition, Billdu is specifically designed to meet the needs of small- to medium-sized businesses like yours. We keep our prices as low as possible, starting from just $1.99 per month, so even the smallest start-up can enjoy many of the features offered by the much more expensive market leaders.

With a whole host of other innovative features to make running your business easier, as well as our intuitive and user-friendly expense tracker, it’s worth giving Billdu a try to see just how much it can help you out daily. Click the button below to start your FREE trial and discover the many features of Billdu for yourself!

Start tracking your cash expenses with Billdu

Try Billdu today to start creating professional invoices and tracking your expenses via our user-friendly online dashboard and mobile apps. You can register for a free trial below.

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Financial projections are important for every type of business. But they can be somewhat daunting and difficult to get right, as you are trying to predict the future growth of your business while also attempting to anticipate your expenditure over a given period in the future. However, making realistic projections can be easy when you know how.

Billdu has put together this essential guide offering everything you need to know about financial projections: what they are, how to calculate them, and how having the right software system supporting your business can make a world of difference to the accuracy of your projections.

What are financial projections and why do they matter?

A financial projection is essentially an educated estimate of the revenues and expenditures of your business at a specific point in the future. Financial projections are important for several reasons. They enable you to forecast the predicted growth and success of your business so that you can make essential decisions regarding production, investments, and expansion. They also form a vital part of your business plan if you are trying to attract investors, as they demonstrate the predicted ability of your business to make the most of market opportunities and handle threats, so your financial projections have a direct impact on the valuation of your business.

There are generally two types of financial projection, and most businesses use both of these:

  1. Short-term projections: these account for your first year of business. They are usually broken down month by month.
  2. Mid-term projections: these usually cover the coming three years, and are broken down into yearly projections.

Both types are important, especially for start-ups and small- to medium-sized businesses wanting to attract investment.

Difference between financial projection and financial forecast

Financial forecast vs. projection: what’s the difference?

Many people confuse the concepts of financial forecasts and financial projections, and they can be quite similar. However, there are subtle differences between the two, and it is important to understand these if you want to get your financial projections right.

1. Financial forecast

A financial forecast is defined as a prospective financial statement that presents the expected financial position, results of operations, and cash flows of your business, to the best knowledge and belief of the person or people responsible for preparing the forecast. It is based on assumptions about the most likely courses of action you expect your business to take, within the economic conditions which are most likely to exist over the given period.

As a financial forecast deals with the most likely scenarios, this is the information most often given to external stakeholders, such as potential investors, as this is considered the most important information when placing a valuation on your business.

2. Financial projection

A financial projection is also a prospective financial statement presenting the expected financial position, results of operations, and cash flows of your business, to the best knowledge of the person or people responsible for preparing it. However, instead of just being based on the most likely actions of your business and most probable market conditions, a financial projection will include one or more hypothetical assumptions which might be less likely to happen.

For this reason, financial projections are more often used internally to help you make business decisions, because they enable you to predict what could happen to your business in a variety of different specific situations, offering hypothetical answers to many “What if…?” questions. These can be highly useful when it comes to making decisions about, for example, new product lines or hiring new staff.

Why the difference matters

As the methods used to create financial projections and financial forecasts are different, it can have a significant impact on your business if you don’t know the difference between the two, as they can produce completely different figures. Projections are more hypothetical, so the figures they produce are usually not as realistic as those produced by forecasts, which are based on the most likely set of conditions. If, for example, you get a business loan based on a financial projection rather than a forecast, you could find yourself struggling to meet your repayments if you have valued your business too highly.

However, as we have seen, both types of reports have a valuable place in the life of your business and can help you meet the varying challenges of the future more successfully.

How to create financial projections

How to create financial projections

Creating accurate financial projections and forecasts is essential for every start-up and small business owner, particularly those looking for investment, as they will form an important part of your business plan. Even if you are not trying to attract investors, the insights provided by these statements are highly useful in setting your budgets and making plans for the future so your business can expand successfully and react appropriately to market conditions.

Because of this, it is important to know how to create financial projections, and what information you need to include, as these figures need to be as accurate as possible. Some businesses choose to use a financial projection template to make this process easier, but if you want to create one from scratch, you will need to include the following documents:

1. Sales forecast

This is usually a spreadsheet which predicts your expected sales over a specific period. If you are an established business, you will probably be covering the next three years. You can break these down monthly for year one, and either monthly or quarterly for years two and three. Each different line of sale should be presented in a different section showing the number of unit sales, pricing, cost of sales and gross margin, based on past and current sales.

If you are a start-up business, you will only be forecasting sales for your first year, month by month. The presentation should be the same. However, as you do not have any previous sales figures to base your predictions on, you should provide your best estimates based on a thorough understanding of your industry and market trends. If you can demonstrate that you have done your homework rather than just guessing, potential investors will be impressed.

2. Expenses budget

This is where you need to show how much it will cost your business to make the predicted amounts of sales. This section should be broken down into fixed costs and variable costs.

Your fixed costs are those that are more or less the same every month. These can include things like:

  1. Payroll
  2. Office rent
  3. Phone and internet costs
  4. Insurance

Your variable costs are those that are different every month or only occur occasionally. Examples can include:

  1. Advertising and promotional activities
  2. Cost of raw materials
  3. Credit card fees
  4. Seasonal workers

You will also need to work out the amounts of taxes and interest you expect to pay, based on your predicted numbers of sales.

3. Cash flow statement

Your cash flow statement shows the actual amounts of money you expect will be moving in and out of your business during the period you are forecasting. If you are an established business making predictions for the next three years, you should base these figures on your previous profit and loss statements and balance sheets to produce realistic estimates.

If you are a new business forecasting for your first year, you will need to do some research as you do not have any previous figures to base your estimates on. You should look carefully at your sales forecast and expenses budget to make your best assessments. You also need to remember that you will not get paid straight away for every sale – some of your invoices may not be paid for two or three months, so you need to account for this. You should work on the assumption that only 80 percent or less of your invoices will be paid within 30 days.

4. Income projection statement

This is a forecasted profit and loss statement detailing your expected profits or losses over the next three years. You should work these out using the figures you have used in your sales forecast, expenses budget and cash flow statement. A figure for each year should be included, as well as a total for the three-year period.

5. Balance sheet

Your projected balance sheet needs to account for all the assets and liabilities of your business. These are items which can’t be included in your sales and expenses figures.

For example, your assets would include any property or equipment your business owns, unsold inventory, and any invoices that have not yet been paid. Your liabilities are amounts that your business owes to other people, such as the amount you owe on a business loan or invoices from your suppliers that you have not paid yet.

The balance is the difference between the total value of your assets and the total value of your liabilities.

6. Break even projection

The point at which your business breaks even is when the amount of money it is making overtakes the amount it is spending, including interest. If your business is viable and you have worked out your figures accurately, you can use your financial forecasts to work out the predicted date when you expect it to break even. This is extremely important for potential investors, who want to see evidence that your business will grow.

Create invoices and inputs for financial projections

How Billdu can help with your financial projections

When you are making financial forecasts or projections, you need your numbers to be as accurate as possible, so you should base them on previous figures wherever possible. Because of this, it is important to have all your essential documents, such as invoices and records of sales and payments, organized neatly in one place, so you can easily find the information you need.

Billdu makes this process quick and easy. Our cloud-based app organizes all your documents neatly in order, making it simple for you to find the information you are looking for. Thanks to the mobile apps for iOS and Android which come with the system, you can also download this information onto a smartphone or tablet, not just a PC. This means you can work on your financial projections from home if you choose, freeing up your time in the office to concentrate on other important aspects of running and growing your business.

If you would like to find out more about the difference Billdu can make to your business, click below to start your FREE trial.

Prepare the inputs for your financial projections with Billdu

Try Billdu today to start creating professional invoices and tracking your expenses via our user-friendly online dashboard and mobile apps. You can register for a free trial below.

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