Why Small Businesses Should Never Give Petty Cash Loans to Employees

As a business advisor, I commonly came across small businesses where owners of companies gave small, short-term loans to their employees out of their petty cash fund. Whenever I came across this, I always explained why these small business owners needed to stop this practice immediately. Small business petty cash loans are always a bad idea.

Your Petty Cash is For Emergencies

Your petty cash account is there to give you cash on hand when you have a small emergency purchase. It should only be used for such things. I once was in an office where an owner had given a loan to a worker from the petty cash fund. Two hours later, he had to run to the store to buy toilet paper with his own money. This should never have to happen.

Doesn't Help Your Employees Learn

If employees become used to getting petty cash loans from your small business, they will never learn the value of budgeting their money. They will begin to figure that if they run out of money in the middle of the week, you are going to be there to bail them out. As a small business owner, you probably want someone to help you with your work from time to time. Don't you want someone to help that knows the value of money and of saving?

The Problem Increases

Once you let a person take a petty case loan from your small business, they will continue to come back again and again in the future. More workers will find out about it, and will be knocking on your door for gas money and lunch money every day.

Record Keeping

I am sure that if you are a small business owner, you have to keep track of a lot of expenses, and fill out a lot of records. Do you really want another record to keep? Do you really want to have to get to the point where you have to keep a running log of which one of your employees owes you money due to your petty cash loans?

Invitation To Steal

I have found that the small businesses that I worked with that allowed for petty cash loans had a higher loss of cash than those that did not. Record keeping for the petty cash loans would get flubbed, people would stop recording it, or records would just get lost. If you keep your cash drawer open for your employees, some will keep going in there on their own.

If you are a small business owner who allows for petty cash loans, stop now. Do not sit there and tell yourself that your employees would not steal from you or mess up your record keeping. If you are sitting there and saying this, you are on a dangerous path because you are denying a simple human principle that greed exists, and that anyone can be corrupted by it.