Almost every small business owner I’ve met wears many hats – worker bee, accountant and salesperson are just a few examples – while also trying to run their business. We are incredibly busy, which means we don’t always have time to make a run to Staples or Home Depot. Inevitably we have no choice but to delegate.

For that delegated Home Depot run, however, we must decide how to handle payment. Not all employees are willing to lay out the money themselves and then fill out an expense report. So many small business owners just give them cash. But there are a lot of hidden costs and downsides to cash that you might not be aware of. Here are a few:

1.     Lack of accountability. When you give your employees cash for expenses, tracking receipts and where the money went can become a logistical nightmare, often leaving you with no other choice than to just take their word for it. With cash, you also need to manually enter expenses into your bookkeeping system – there’s no automatic syncing, unlike with a debit or credit card. Many small business owners don’t have the time to make those manual entries, or they lose receipts before they are entered, which means they also lose the opportunity to deduct those expenses when tax time comes around.

2.     No ability to restrict what employees buy. Using cash makes it next to impossible to put boundaries on what employees can buy with your money. Say one of your employees is instructed to buy gas with the $50 bill you gave them. It’s pretty easy for them to spend $40 of that on gas and the rest on snacks, especially if they know you’re not good at tracking receipts. Those “expense leaks” can add up.about:blank

3.     Poor budgeting. When businesses use cash or credit cards to manage spending, budget overruns are more common, frustrating owners. At best, they can discipline an employee who frequently goes above budget. But oftentimes that money is unrecoverable.

4.     Multiple trips to the bank/ATM. A business that operates solely on cash also requires extra work. It means going to the bank, often on a daily basis, to withdraw the money needed for that day’s expenses. And if an unexpected expense arises and you run out of cash, that means another time-consuming trip to the bank.about:blank

5.     Not all businesses accept cash for payment. There are certain expenses for which you simply cannot use cash – like renting a car or reserving a hotel room. No card, no dice. This also goes for online purchases.

6.     No purchase protection. Most credit and debit cards provide some measure of protection for purchases. That can mean anything from being able to return an online purchase easily, to giving you added liability assurance. The same can’t be said for cash. Once the cash is gone, that’s it. So if you happen to have an employee that decides to treat themselves using your hard-earned cash, you can’t fill out a complaint and expect a refund.

We’ve all heard the phrase ‘cash is king,’ but the reality is, making a practice of using cash for all your business purchases is just not in the small business owner’s best interest. For example, it’s not uncommon for a company with five employees to have each of them misspend by $100 in a given week. That adds up to $26,000 a year that could instead be going toward your bottom line. For businesses with more employees and more volatile spending, that number can be three to four times as high.

Establishing good financial habits early on will save small business owners from unnecessary headaches down the road, enabling them to take the worry of financial management off their plates so they can focus on the more important task at hand – running their business.