It’s my business, it’s my money! Right?? Well…
Let’s talk about using your business account for personal spending.
One of the things I really stress for my small business clients is that you really need to have dedicated business bank account. There are all kinds of good reasons to have a business bank account and someday I will pontificate about that; but for now I just want to focus on how you use your business account.
The problem is when your business account is what you use for most of your own spending. Sometimes it is a just a matter of grabbing the wrong card at the store. But usually it is a matter of convenience; the business account already has the money in it, so it is just easier to make payments directly, or even set up autopay for things.
There are some real problems with this approach though. The biggest one for me is that it just makes my job harder. Is this Kroger expense for the office, or is it groceries on the way home? Is this Crimson Cup coffee for the office, or coffee for you on the way to work? And don’t even get me started on Amazon.
I wind up spending a lot of time checking and asking and waiting for replies. Or I just end up guessing, which I really don’t like to do. So this drives up your bill, but it also means I don’t get your books updated timely, because to be honest, when I know working on a client’s books is going to be frustrating and I am not going to be able to finish anything up, well, I put it off.
So that’s my biggest reason for telling you not to mix business and personal. It is just bad practice. But there is more…
Many of my business clients are limited liability companies (LLCs). The primary benefit to being an LLC is that is that the LLC is considered a separate legal entity. If something goes wrong, and the business is sued, only the business assets are at risk for loss. That’s the limited liability part. It’s the same basic idea with an s-corp. The business is a separate legal entity, a separate person. But if the business-person and the person-person are commingling funds, it starts looking like there is only one person. The worst-case scenario here is that a taxing authority, or God forbid, a court, would determine there was no separate entity, and LLC or s-corp status would be revoked or disregarded. Unlikely? Probably. But not worth the risk, especially when the solution is just to do some better cash flow.