Personal and Business Finances

Accountants and Bookkeepers alike will tell you that keeping your personal and business finances separate is imperative to running your business and keeping your sanity!

So take a moment and be honest - do you muddle your personal and business finances?

So why is this important? Here are five key reasons that you should keep your personal and business accounting separate:

1. Limited auditing trail

   • Could you quickly answer questions like “what were your marketing expenses for last year?”, “what are your year-to-date sales?”, or “what are your expected office expenses for the next quarter?”. Answering questions like this could help you make better informed decisions for your business going forward.

2. Mental separation of personal and business

   • By commingling the funds for your household and your business, you are balancing two budgets with the same account - whether you realize it or not. Could you quickly identify if a transaction from a year ago is business or personal? Maybe, but it make take some thinking back to the particular transaction. This mental strain of having to remember which transactions are for business or personal can weigh on you without you knowing.

3. Growth will be difficult

   • Is your business on track to hire more employees or take on investors? In the case of additional staff, you may eventually hire or contract with a bookkeeper to help run functions like payroll or accounts payable. Mixing of funds would mean that your new bookkeeper would be in your personal account as well. This is not advisable and would get messy! If approaching investors to assist with growth is on the horizon, they will be looking for financial discipline and may ask questions from #1 that you wouldn’t be able to easily answer.

4. Complicates your taxes

   • As soon as we hit January 1st, many of our clients begin pulling documentation to prepare their tax returns for both business and personal. However, if your personal and business transactions are intertwined, you will have additional work of separating these transactions before the real tax preparation can even begin.

5. Opens your business up for an audit

   • Commingling funds is a major red flag for the IRS. If your business returns are questioned, an audit would be imminent if an auditor gets wind of the mixing of personal and business finances.

We hope you’ve learned a thing or two, but also that you will heed our warning to keep your personal and business finances separate. If there is a need to move funds from one account to the other, contact your bookkeeper or accountant to understand the best way to account for these transactions.

Contact us today for a FREE consultation if you are ready to begin the process of separating your business and personal accounts - we’d love to set you up for success!