not-so-petty cash fund, The

Optometric Management, Mar 2000 by Gailmard, Neil B

How to handle this practice necessity most efficiently.

So many administrative details require your attention as you set up a practice that it's easy to overlook some of them. One such detail is a petty cash fund. You'll certainly want to establish one. A petty cash fund is an account used by authorized people to pay small, incidental or unusual practice expenses.

WHY YOU NEED ONE

You'll pay most practice expenses out of the practice checking account monthly. Bills from your regular suppliers will be handled this way. But other expenses will arise, sometimes unexpectedly, such as: the fresh bakery items you might ask your receptionist to pick up for an early morning staff meeting tomorrow

the $47.84 C.O.D. fee the letter carrier needs to drop off a special frame you ordered from a supplier whom you don't have an account with yet

the amount your technician needs to pick up some tools to repair your edger.

You shouldn't expect your staff members to pay for these business expenses and then be reimbursed by you. And these inconvenient duties shouldn't fall on your shoulders either when you could delegate them. Furthermore, for tax reasons, why pay out of your pocket when you could charge the business?

YOUR OPTIONS

The petty cash fund is efficient and practical, but improperly managed, it can create not-so-petty problems. Below, I explain your three options-cash, checking, credit - and how to handle each. You might find that you need any one of these, or all three.

* Cash. The most traditional petty cash fund is made up of - you guessed it cash. While the need for this is declining, it can still be practical. This is especially true when the dollar amount is small or when the vendor doesn't accept checks or credit cards (such as the local doughnut shop.

WHAT TO DO: Decide how much cash you need in a typical month. Write a business check for cash, listing "petty cash fund" as the purpose. Assign the check to a general expense category, such as miscellaneous office expense.

Cash the check for bills in small denominations and some change. Keep the money in a cash box. Decide which of your office staff members have authority to spend the cash, giving them guidelines as to acceptable expenses and when your approval is needed. Put the guidelines in writing as part of your office policy manual.

The cash box must always balance to the exact amount with some combination of cash, receipts or at least a note with the date and purpose. When the cash dwindles, total the receipts and notes and write another business check for cash.

TIPS: The cash fund is the easiest for employees to abuse. Staff members might "barrow" from the fund but forget to replace it and not document the reason.

* Checks. A checking petty cash fund is handy as your practice grows and you want to delegate more to an office manager.

WHAT TO DO: Open the account with the manager's name and signature. You could establish yourself as co-signer, but having to co-sign checks negates the convenience. You'd periodically fund this account from the main practice checking account.

TIPS: If you keep the balance fairly small, perhaps $200, and routinely monitor how money is spent, you should have no problem. Because checks leave a paper trail. they're less easily abused than cash.

* Credit card. It makes good sense to establish a Visa or MasterCard account for business use only. It's convenient for buying goods and services locally and for mailorder or Internet purchases. Items charged to this account will be treated as business expenses and be paid for out of the business checking account.

WHAT TO DO: This account should be used by trustworthy high-level managers. While Visa and MasterCard will generally not hold you liable for expenses when a card is stolen, it's another matter if you've authorized someone to use it.

TIPS: Minimize your risk with a low credit limit. Or have key employees bonded through your insurance company. l

Dr. Gailmard is in clinical practice at Gailmard Eye Center in Munster, Ind. He's also the current Benedict Professor of Practice Management at the University of Houston College of Optometry.