Mixing business and personal finance

Although most people know you should never mix your personal accounts with your business accounts, it seems to happen quite often. People seem to think that just because their business has earned the money, from all the hard work they have put in, it is okay to take out money to make up the difference in a purchase as long as they put the money back. But this is not true; there are many reasons why you should not mix your personal and business finances.

When you first start up a business it can be rather hard to separate your personal and business accounts because you are trying to get up and running. If you are using your own money to start the business you should take the money you have saved to start your business and immediately open up a business checking account so that you can keep track of your business expenses. If you have business credit cards you should also keep those separate from your personal credit cards. By keeping your accounts separate you are protecting both your personal and business interests.

One of the dangers to mixing your personal and business finances is bankruptcy, while it will not necessarily led to bankruptcy it can happen and by having the finances mixed you could end up losing more than just your business. Even if you took the proper precautions when starting your business and created a limited liability company, which is designed to protect small business owners personal finances, by mixing your accounts you could still be personally held responsible. If your creditors can prove that you use your personal account for business and your business account for personal use, you can end up losing both your business assets and your personal assets in a bankruptcy hearing. You can also be held personally liable for business liabilities in a legal dispute if they can prove you use your accounts interchangeably.

Another drawback to mixing your business and personal accounts is the complications it can cause at tax time. You could actually miss certain deductions that you could have taken because they were not in the right account. Your records should provide you with a clear trail of money you have earned and money you have spent for business expenses. By keeping your deposits and expenses in one account when it comes to tax time you will not have to do any "creative accounting" to make sure you are getting all of your deductions, everything will be listed in order right in front of you. Plus by keeping track of everything in one account you will have less paperwork to keep track of for your business just in case you get audited.

Yes the money that you are earning from your business is your money, but rather than mix your personal and business accounts you should set up a pay schedule and pay yourself according to that schedule. You can always give yourself a bonus if you need extra money, but by moving it from your business account into your personal account you are creating a clear paper trail for your business which is the best way to do things.

If you have already been mixing your personal and business accounts you should stop immediately and go back and correct all of the mistakes and account for them properly in your business account. Once you have fixed all of the mistakes continue to keep your accounts separate. Keeping an accurate account of your business not only protects you for tax and legal reasons but it provides you with a clear picture about what direction your business is headed in and you can easily see where all of your money is going. This is an added benefit because it can help you cut back on unnecessary expenses, if you know where the money is being wasted.