Separate Finances

Many have written about co-mingling finances, however many business owners continue to do it.  Therefore, you get my version of the lecture.  Stop mixing your personal and business finances.  Some business structures REQUIRE you to keep business and personal separate, and while this may seem obvious, it is practiced less often than you’d expect.  Today, I want to talk about why it’s a terrible idea to mix business and personal finances. Additionally, I offer a few (obvious) alternatives to the problem. You do NOT need to wait to start!  You can start TODAY and make 2018 less painful.


Top 6 reasons it is a terrible idea  

It’s poor business practice.

Opening up a bank account in the name of your business, using your federal tax ID number and then swiping your business debit card repeatedly at McDonald’s or the 7-11 lends itself to lack of control.

You’re overpaying yourself… by A LOT!

Each time you swipe your business debit (or credit) card for a personal expense, you are essentially paying yourself. How often are you recording that payment to yourself? Some business owners develop a bad habit of using their business card and paying themselves a salary. Depending on your business structure, you should consider making the appropriate changes to ensure you are categorizing these expenses correctly. On the flip side, how often are you recording items you purchase for your business from your personal checking account? The picture of your business’ health is not accurately reflected when you are doing this.  

Bad tax implications.

Using business funds for personal expenses and not accounting for these transactions correctly results in understating your income (charging too many expenses to your business that don’t belong there). Understating your income could result in you paying less in taxes than you actually owe, and a proper audit will detect this. Save yourself the headache and STOP WHILE YOU ARE AHEAD.

Difficulty of bookkeeping multiplies.

As a bookkeeper, it can really be a pain sifting through transactions of clients and trying to decipher what is a meal & entertainment expense versus taking your best friend out for cocktails on a Friday night. Not only does it make our job extremely difficult, but it’s also likely that you aren’t paying your bookkeeper to do your personal bookkeeping. There’s a lot of wasted time and energy involved in this process, and your bookkeeper may decide to drop you as a client if the behavior persists.

It will cost you more, especially at tax time. 

If you bring your tax preparer a box of receipts for personal and business transactions, they have to sort through and toss half or more of the personal expenses.  Hopefully you’ve saved the business ones that will qualify for expense write-offs.  If not, you are likely not recording all your expenses properly.  Additionally, when you hand a box over, you pay more for the organization than having the numbers ready for your preparer.  

It’s harder to get funding.

Business booming? Need a loan to support the growth? Having commingled funds is a headache!

Now you understand how much of a pain this seemingly unintentional mistake can be. Here are a three tips to get you going on the right foot.

  • Open up a business checking, savings and credit card account TODAY. I personally recommend using a local credit union (for easy access) or an online institution like Spark Business Checking by Capital One.
  • Keep and label ALL of your receipts. If you run into a situation where you absolutely have to purchase something for your business with your personal debit card, maintain the proper paper trail for it. Trying to guess what you purchased in February, at the end of the year, is both frustrating and unnecessary. The more organized you are, the better!
  • Hire a bookkeeper who uses apps to help you manage everything.  

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