Tip 1 of 10: Don’t Commingle!

Welcome to the Top 10 Tips for Financial Success blog series, where we hit the books to better manage your books!

Whether you’re a small business or a solopreneur, these 10 tips are vital to your bottom line!

Keep your personal and business accounts separate – don’t commingle!

What is commingling?

Commingling means mixing personal and business funds, and it can take various forms. Maybe you’re using one bank account for both personal and business expenses. Or you have multiple bank accounts and credit cards, and you are interchangeably charging business and personal expenses to those various accounts.

Either way, you’re commingling. Stop doing that right this minute!

Commingle is a word that makes bookkeepers cringe and gets the IRS excited. We don’t want the IRS excited – we want them bored to tears because our books are so clean!

The cleanest way to manage your business? Keep a separate business account.

When should I start separating accounts? There’s no gentle way to say this: Immediately.

Keeping separate accounts is vital at any stage in your business. Forget that little voice telling you, “Well, I only have a couple of transactions per month, I don’t really need to have a separate account.” You absolutely need a separate account!

Another objection I hear from clients is, “My bank won’t let me open a business account because I’m a sole proprietor.” Then open a personal checking account! It doesn’t matter what kind of account it is; it only matters that you use it only for your business. A checking account with an ATM card, plus a credit card devoted to business transactions are all you need.

But how do I pay myself?

Easy! Once you’ve paid your business-related bills and expenses through your new separate account, you’ll pay yourself what’s called an owner’s draw. You will transfer money from your business account to your personal account, then use that account to pay your personal bills.

Presto! Separation is achieved! No commingling!

How will this help save my business money?

We can all agree here that time is money, right? Well, not separating your accounts and transactions will cost you time and money.

Trying to keep track of all the transactions in different accounts is time-consuming for you and takes you away from your building your business. If you have a bookkeeper doing your books, then they’re spending more time trying to separate all of those charges, which is then in effect costing you more money.

Not convinced?

Here’s an example:

Commingling in action (AKA: What NOT to do):

I had a client who is a contractor, who commingled across multiple checking and savings accounts as well as a bunch of credit cards. He would willy-nilly charge whatever he was buying on whichever card was on hand at the time.

Commingling made it difficult for me, his bookkeeper, to separate all of these charges to create reports for him.

For example, he went to Walmart regularly. Sometimes he would buy office supplies, sometimes tools. At the same time, in the same transaction, he would also buy items for his family, such as clothing, groceries, etc. He paid all of these Walmart charges through the same bank account. There was no way for me, as his bookkeeper, to know which charges were for business expenses and which ones were personal. To boot, he had no documentation to back it all up.

Result? Unable to identify which expenses that he could apply to his business, he was unable to take deductions, which left him with a bigger tax liability.

The Bottom Line

In sum, when you commingle funds and payment sources, you make it more difficult to keep your financial house in order. In turn, it costs you more money to operate this way. Think of it like this: “Do you want your business to grow?” Of course you do! Then stop commingling right now, and open a separate business account. About Us

At Beth Blaney & Associates, our top concern is providing small businesses and solopreneurs freedom from the number-crunching and office work that pulls them from their fields of expertise. We are dedicated to helping and empowering business owners!

March 16, 2020