As a bookkeeper, one common issue that I see with small business owners is the commingling of personal and business funds. It usually begins as a small purchase being made for the business accidentally with personal funds or vice versa. This is not a big deal if it is a one-time thing. When it becomes common place, larger issues can arise and the following questions need to be answered:
- For those personal purchases made using the business funds, are they being paid back to the business?
- Is the business paying the owner back for expenses made using personal funds?
- Are those business expenses that were made via personal funds being treated as an equity investment instead?
- Are the personal expenses paid for by business funds being treated as an owner draw?
- How will they affect the business and personal tax deductions?
Aside from answering the above questions, deciphering what was a personal expense and what was a business expense so that your business receives optimal tax deductions and credits is CRITICAL. The time it takes your CPA or EA to do this can cost you thousands. In situations like these, having a bookkeeper handle your day to day financial data entry is beneficial. Your bookkeeper can catch these transactions and handle them accordingly so they do not cause long term issues with your financials as well as establish systems to prevent the commingling from happening again.
The best way to prevent the pitfalls of commingling is to stay away from this practice completely. Here are a few ways to make sure your business and personal funds remain separate.
- Have separate checking accounts.
- Do not maintain your personal financial records in the same accounting software file as your business.
- Leave your personal cards at home or locked in a file cabinet when working on your business and vice versa.
- Review your bank and credit card statements regularly and notify your accountant or bookkeeper of any misclassification of transactions.
- Become proactive with your bookkeeping. Taking part in the data entry or reconciling of your financial records gives you a detailed view of how clustered things can become when funds are commingled.
You do not have to tackle this alone. AMH Bookkeeping, LLC is here to help you sort through things and get you back on track with accurate, clean, and current financial records. Schedule your consultation today!
