The cost of handling cash might not be something that business owners think about very often. But they should, because there are many hidden costs that go along with cash handling that can sneak up on them. These hidden costs can have a big impact on the overall profitability of your business! Calculating cost of cash is worth the effort for retailers as it leads to potential savings if the correct measures are taken to reduce costs.
How Do I Calculate the Cost of Handling Cash?
In order to understand where your cost of handling cash are originating, you will need to do a comprehensive analysis of your cash management process from start to finish. Each step in the cash management process from processing transactions to depositing money in the bank has a cost associated with it. One of the easiest ways of calculating cost of cash is to use a cost of cash calculator. This allows you to break down the expenses that occur at each step of your cash management process.
Cost of Cash Handling Impacts Your Profitability
It seems like an oxymoron that accepting cash in your retail business could have a negative impact on the overall profitability of your business; however, that is the reality for many retail businesses. The costs of handling cash can skyrocket due to a lack of organization within a business, poorly managed cash flow, sloppy cash handling, etc. There are many areas where your cash management can become quite costly, and it is a wise decision to protect your business from making these expensive errors.
Certain costs that occur when handling cash are to be expected. Handling cash requires the use of certain materials and office supplies that are necessary to process cash (balancing sheets, coin wrappers, envelopes). While these visible costs remain fairly consistent and can be budgeted for accordingly, there are many costs that occur throughout the cash handling process that are variable.
The hidden costs of cash primarily occur when the cost of labour is involved. Handling cash has traditionally been very labour intensive and dependent on the level of accuracy that retail employees have during transactions. Hidden costs can vary widely from day to day depending on the length of time that it takes to complete the cash management process. If mistakes are made during cash transactions it can drive up the labour time that is needed to complete the cash management process that day. Cash handling mistakes do not simply affect the balancing process but can cost your business in losses and labour costs. Inaccuracies result in higher costs of handling cash, impacting the profitability of your business.
Other issues have to do with internal and external theft that results in shrink and losses, which can increase your costs of handling cash. Protecting yourself against theft by increasing employee accountability and using adequate security measures throughout your business will also go a long way to reducing the costs of handling cash for your business.
How to Control Costs of Cash
After calculating cost of cash, controlling those costs can be done by investing in automated cash management technology. Cash management technology reduces the manual labour associated with handling cash and, as a result, increases efficiency and accuracy. Investing in cash management technology should respond to the direct needs of your business so that it can have the greatest effect. By determining where you spend the greatest amount of money on cash handling, you can determine how making an investment in automation will help your business profit from accepting cash. The costs of handling cash can be a shock for retailers but knowing where your money is going will allow you to make positive changes and reduce waste in your business.