Each day you use a personal bank account for your business, you create more work for yourself.
In this starting a business series, we talked about different types of business structures here, here, and here. Now we’ll talk about the easiest thing to get right that many don’t: opening a business bank account and only taking payments and paying bills for your business with that bank account. Commingling is the easiest way to confuse yourself, your bookkeeper, and maybe even your CPA. Even if you can easily figure out which transactions are personal and which are business, thinking about it takes energy and time you could use in more productive ways.
When you commingle funds
You make it easier for people in business lawsuits to go after your personal assets. This is true even if you have a structure like an LLC.
You mess up your reports, so your numbers are now lying to you.
Your bookkeeper needs to do more work (or you). If you make personal expense out of your business, it needs to be categorized as an owner’s draw with the vendor you just paid. If you made a business expense out of a personal bank account, you must do two things:
- First, make a new expense with one transaction reporting the expense with the vendor you made the purchase with.
- Second, make another transaction crediting the category called ‘owner’s investment’. These have to be done with EVERY. COMMINGLED. TRANSACTION.
I’ll do it for you, but I’ll charge if I have to do a lot of them. In a couple months I’ve scheduled posts teaching how to do these transactions. The only legitimate reason this would happen is if you accidentally pull out a personal credit card to make a business expense (or vice versa), or if you open a business first and start operations before opening the business bank account. Expenses like these might include coaching/training, consulting, legal, etc. After you have your business bank account, they should not be happening more than 1-3 times a year at worst, if you have a system set up.
By avoiding commingling, you’ll set yourself up for success, save yourself a lot of time, and make bookkeeping more manageable for you, whoever is doing it.
To talk to me about your bookkeeping situation, and how I can save you money and get your books straightened out, schedule a free call.
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