The Finance Femme

Kendra James - Business Finance Guru 

Commingling funds…

The one topic that I talk to everyone about!  Past clients, current clients, potential clients, future clients – it’s a BIG deal!

And before I dive deeper into why it is bad business for you and your business, lets define it.

Commingling funds is simply mixing your business money and your personal money.  It’s as simple as that!  Now, don’t tune me out if you’re a smaller business that isn’t bringing in a lot of revenue yet… this is STILL for you.  Stay tuned & keep reading!

Want examples of commingling?

•    Paying for business costs with your personal bank account. {Have a deposit due for your website that is coming up?  Use your business account for that; not your personal account!}

•    Depositing revenue or money made from sales direct into your personal account? {You thought you were just ‘paying yourself’, right?  Well, there’s a specific process for that!  Directly depositing revenue into your personal account is not the way to go.}

•    Adding additional money into your business account without keeping any record? {Look, there’s no harm in continuing to invest in your business – but, make sure the proper steps are taken first!}

Now – there are many reasons why it’s “bad”, but ultimately what it boils down to is this:

•    IRS complications: The IRS will always make sure that what is due to them is what they get.  They don’t want to ever get short changed.  If you say that you owe $20k in business taxes due to your record keeping and receipts and they ask for proof of that and your proof is a mess; then it gives them the rights to get all in your business… this includes your personal banking business.

•    Struggles managing your business: How can you tell if your business is profitable if you can’t clearly tell how much your business is bringing in and how much it’s costing you?  Spending hours to ‘clean up’ your books and records after the fact is not only inefficient but it also leaves a TON of room for error.  As the owner you need to always be aware of the financial pulse of your business.  And at any given time you should be able to pull your financial statements and budget, and know where you currently stand and where you are going.  Mixing funds only muddies the water and does not allow you to do that.

•    Paying too much in taxes: Inaccurate records can not only get you in hot water with the IRS; it can cause you to potentially pay too much to the IRS.  Bad records result in a bad tax filing.  A Financial Manager, CPA, tax advisor, etc. can only do so much to recover and rectify a situation after the fact.  If you pay for business meals with your personal account – or pay yourself directly from income without recording it.. you could be messing up your tax records.

So how do I avoid this?

I recommend opening a business checking account as soon as you’re ready to start your business.  Many times you do not need to start with a huge deposit – just something to get the account open.  Make sure that you keep proper records & receipts – and if you don’t know what those are seek the help of a Financial Consultant, CPA, or tax advisor.  Already commingling funds??  Don’t beat yourself up – just change it up!  Start today – and work with a professional to fix and clean up your past records!