I talk to a lot of business owners who only have one checking account for all their business and personal finances. This is a NO NO. And here’s why:
- Using the same account for business and personal transactions makes it difficult to keep accurate business records. To be able to deduct business related expenses correctly on your taxes, you must be able to provide an accurate record of those expenses, and mixing of personal/business makes that difficult to do.
- If your business were to (GASP) undergo a tax audit, the mixed account(s) would not present a clear picture of your business activity. It would be very easy to mislabel personal expenses as business and vice versa. If the IRS finds personal expenses it’s an automatic flag to them that you might be doing other things you shouldn’t.
- Mixing your personal and business transactions “pierces the corporate veil of protection.” Even if your business is a legal entity, such as an LLC, that technically protects your personal assets from business liability. But if you use one checking account for everything, that’s gone. Donezo. That means if someone sues you and your personal and business finances are comingled, your personal assets will be at risk as well.
- This is the same with business DEBT. If your business goes under or you owe creditors that you cannot pay at the time, if legally you show your personal and business assets comingle, then you can’t show that your business is separate from personal and you’re putting all your other personal assets at risk.
- Even if you think you’ll never get sued or audited (and hopefully you won’t, but you can’t just rely on wishful thinking when it comes to your M.O.N.E.Y., there’s another immediate motivation to separate those finances: If you don’t, you’ll be paying MUCH for for bookkeeping and CPA fees. More transactions to sort through and the complexity of trying to separate the transactions for you increases the amount of time, and therefore the fees, that you will pay.