A money changer's books: the cash is not cash, it is stock

Hook

Boss, in money changing your business has one feature nobody else has: your stock is cash. Other people sell goods, and the goods sit on a shelf where they can be counted; your "goods" — ringgit, Singapore dollars, US dollars, baht — go in and out over the counter all day, hundreds of times. A bank account has a monthly statement to reconcile against. What do you reconcile the cash at the counter against? Today's episode is about the books in this trade, and that is exactly where the weight of it lies.

Rule one: record it on the spot, not after closing

Start with the most fundamental rule. In this trade the books cannot be caught up after closing time. Why? Because cash leaves no trace. A document or a transfer you can still trace the next day; a cash transaction that was not recorded on the spot is gone for good. (The incomplete records from the twenty-sixth lesson are fatal in this trade.) So the rule is hard: every deal goes into the system the moment it is struck — which currency, buy or sell, how much foreign currency, how much ringgit, at what rate, and which teller. This is not only bookkeeping. It is your only chain of evidence (the forty-fifth lesson: clean records are the cheapest insurance in this trade). The second thing is equally fatal: the company's cash and the boss's cash must be two separate piles. The third lesson covered keeping business and personal apart — in other trades, mixing them means untidy books; in this trade, mixing them means books nobody can check. The boss wants to change money? Through the counter, recorded like any other deal. No exceptions.

No statement — so how do you reconcile?

Now the central problem of this trade. A bank account has a monthly statement to reconcile against (the twenty-seventh lesson). Nobody posts you a statement for the cash at the counter. So what do you rely on? The count. And you count in layers. The usual arrangement is this. The small safe — the counter float. Small amounts, counted every shift. The big safe — the back-office holding. Large amounts, and movements in and out need two signatures. Every movement between the two safes needs a transfer slip: who took it, how much, which currency, who approved it. Then the handover, split by shift. At the end of every shift: the counter counts the cash and the foreign currency once, the system runs an expected balance, and the two figures are put side by side — how much is the difference, and why? The person on that shift signs. A difference is allowed; a difference nobody owns is not. That amounts to making your own "monthly statement" — only it does not come from the bank, it is one you close out yourself every shift. Then there is cash in transit. Money goes from the shop to the bank, or is drawn from the bank back to the shop, and for that stretch it is neither in your safe nor yet in the bank. So the books need a place for it: cash in transit. The collection company's receipt, the sealed bag number, and the bank's credit advice — all three have to agree before that item is cleared. Cash in transit left hanging with nobody watching it is the classic hole in this trade.

You earn a spread, but the books have two kinds of earning

That is the control side; now the earning side. Your profit comes from the spread — the small gap between the buy rate and the sell rate. But in the books, that earning comes in two kinds. The first: realised. A customer brings Singapore dollars and sells them to you; a while later another customer buys Singapore dollars from you. One in, one out, and the difference in the middle has turned into ringgit. That is a realised exchange gain — actually banked. The second: unrealised. On the day of the year end there is still a batch of Singapore dollars sitting in your safe that has not been sold. You took that batch in at some price, and today's market price may be higher or may be lower. That difference has not turned into ringgit yet — the books have to recognise it, but it is unrealised. Why keep them apart? Because the realised part is performance and the unrealised part is market movement. Mix the two together and you will think you are good at this business, when in fact the rate simply happened to move your way — and the same is true in reverse. So which rate do you use at the year end? The principle is that the foreign currency in your hands is your stock, and stock at the year end is taken at the lower of cost and market value — or, under a written policy, revalued consistently at the closing rate on the year-end date. (The thirty-fourth lesson: both treatments have to be defensible, but once you have picked one, keep it the same every year.) And then there are forward bookings. Booking a currency with the bank in advance at a particular rate for a particular date — that is a contract. The moment the contract is signed, your price is locked. The books have to remember this: do not take the portion that is already locked and revalue it again at today's market rate, or the same risk is counted twice.

The licence decides what you can do

One last section, and it is something a lot of people do not get straight at the start. Money changing is a licensed trade, and licences are graded. In principle: a different grade means a different scope of business — whether you may do wholesale, whether you may deal with overseas counterparties, whether you may do remittance — all of it is decided by the licence in your hand. There is also a capital requirement: different grades require different amounts, and that money is not there for show; it is the regulator's proof that you can carry the risk. ⚠️ The actual grades, conditions and capital amounts may be revised year to year — go by BNM's rules for that year and by the terms of your own licence. Do not make decisions on what somebody in the trade told you. And then the thing most people confuse. A money changer and a remittance agent are not the same thing. A money changer — the customer brings one currency and changes it on the spot into another. The money changes hands at the counter and the transaction ends there. A remittance agent — the customer hands you money and you are responsible for getting it to somebody else, usually in another country. The transaction is not over when it starts; the money still has to travel. In the books they are completely different: changing money is buying and selling and what you earn is the spread; remittance is holding money on trust — the customer's money passes through you, that is not your income, and your income is only the fee. (The nineteenth lesson said it: record money collected on behalf of others as sales and your turnover is inflated — and in this trade what gets inflated is not only the turnover, it changes the angle the regulator looks at you from.)

To close

In summary. Cash is your stock — every deal entered the moment it is struck, and the boss changing money goes through the counter like everybody else. With no statement, use the count as the statement: the small safe counted every shift, the big safe two-signature, movements on a transfer slip, and cash in transit in an account of its own. Keep realised and unrealised apart — one is ability, the other is the market. Do not revalue the forward-booked portion twice. The licence decides what you can do, and remittance and money changing are two different businesses. Whether the books in this trade are done well is not, in the end, judged on the profit and loss account. It is judged on one sentence: on any day, at any point in time, can you say where every sen is? Grab a coffee first and talk about your business. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.