Cash Management Best Practices for Closely-Held Businesses
Why Tracking Cash Still Matters in a Digital World
Despite the ever-digitizing business landscape, physical cash continues to be the third most used payment instrument according to The Federal Reserve Financial Services 2025 Diary of Consumer Payment Choice report. Even though the usage of physical cash (henceforth just referred to as cash) has decreased over the last decade, the report notes that usage rates have leveled off in the past few years and may now be as low as it is going to go for the foreseeable future. Therefore, if you run a business it is highly likely that you will need to handle coins and bills at some point. Even if the event is extremely rare, it is good to have procedures in place on how to handle and track cash whether you are receiving it or spending it.
1. Record How & Why Cash Was Received or Spent
Your first objective is to come up with a system of recording how you received or spent the cash and why. In a retail setting typically Point-of-Sales systems, like cash registers, are used. In a setting like contracting, work tablet computers and smart phones can work well for recording cash received or spent. If need be, even a standardized system of hand-written receipts may be used to then later be entered into your accounting software of choice. The goal is to make sure that you can answer the following two questions for every penny that comes in or goes out:
Who did the payment come from or go to?
What was the payment for?
If you receive or spend cash and cannot answer these two questions about the transaction or transactions involved, you are running the risk of encountering accounting and analysis headaches or missing tell-tale signs of theft. The issue is that transactions with no known reason for having occurred are of little use for understanding how your business is performing and difficult to properly report such as when filing sales tax. Such transactions also have a bad tendency of being viewed as connected to products or services that were not tracked for extremely questionable reasons, which can spur very unpleasant questions from auditors or governmental tax authorities like the IRS. Note that the more robust the proof you have, the better. Your word carries less weight than a signed receipt, for example.
2. Track When the Transaction Occurred
Your next objective is to track when you received or made a payment. This is something that it is best to know down to the minute when possible, and bare minimum to the specific day. The purpose of such precise tracking is to be able to differentiate transactions with similar amounts later on. Such details prove very useful when your later need to revisit a transaction for reasons of refund or reporting. It is unpleasant to figure out which of the 50 identical transactions for $50 is the one you are looking for.
3. Maintain a Clear Chain of Custody for Cash
Objective three is to have a method of following a chain-of-custody in regards to cash. As an example for cash receipts, this means having records proving that the cash register showing $200 in its till resulted in $200 being put in the safe and finally $200 ending up in the bank. In this example, the cashier would have the register tape showing the same amount as the till they hand in at the end of their shift. Their manager would then sign off each night that the amount they verified being put into the safe was the same as the sum of the amounts taken from the registers. Finally, the owner would count the amount being pulled from the safe and match it against the deposit receipt they received from the bank.
For an example of chain-of-custody for a cash payment, this means records proving the employee who received $100 from the petty cash box bought $38 in approved office supplies and returned with $62 that was put back into the petty cash box. Here the manager signs off on having dispensed the petty cash and later on having received the change back. Meanwhile the employee would be able to provide the receipts that the owner would review to ensure that the petty cash the employee used was in fact spent in the amount and for the reason the employee stated.
Build Internal Controls with Separation of Duties
In both of these examples the key is that one person is not tracking the money from start to finish. This separation of duties and variety of documentations makes it very hard for cash to appear or disappear without a reason. Both purposeful fraud and simple counting mistakes are guarded against.
Improve Cash Management
Guidance in setting up how you handle cash transactions is just one of the many advisory services the Client Accounting and Advisory Services team here at Wegner CPAs can provide. As the name suggests, we also offer full accounting services where your cash transactions and more can be organized and analyzed to ensure you have the data you need to run your business. Get in touch to learn more.
