Should you keep your business and personal finances separated?

If you don’t have enough choices to make when starting your business, here is yet another one to consider. What is the best way to keep your financial books? Should you keep your business finances separate from your personal finances? Should they be combined? As we will see in this discussion from the Gopher Lawn Care Business Forum, there is one option that is better than the other for a multitude of reasons.

One lawn care business owner wrote “business and personal finances, should they be kept completely separate? In my finance software I keep track of my business account as well as my personal account. The problem I see is I don’t actually have a business account, it’s just a cash account at this time so if I buy something I deduct it from the business account as well as my personal checking account. I do this so it reflects on the checking account as that is where the money is actually coming from. I want it to show on the business account as well because I want to know how much I am making and or losing from the business.

One problem that comes up is if I spend $10 in gas, it tallies it as $20 in my financial reports because it shows $10 from each account. Any advice? Should I completely separate them or should I be fine keeping them together at this stage?

I am wondering if considering this situation it would not be best to STOP using money from my personal account for business. I am in the black as far as business goes and all my equipment is brand new so I don’t foresee anymore large expenses. Maybe using the mindset if I can’t afford it I can’t have it would be the best way to go at this point.”

A second lawn care business owner said “there is only one real purpose for my business account and that is so that I am able to cash checks that people write to the business name instead of my name.

Of course it does also help separate my personal money from the business money but I track business expenses on all accounts, even the petty cash account. I only think this is really an issue if you are incorporated. In a sole proprietorship I believe the business money is your money.”

A third shared “they should be kept separate in my experience. In the event of an audit, things will go much faster and easier. I charge tax and tax reporting is much cleaner if it’s kept separate. Also should I decide to sell the company at some point, a purchaser can have full access to the books without looking at my personal finances.

I own three companies, two are sole proprietorships and one is incorporated, I like keeping everything clean and neat.”

A fourth added “you can do a lot of screwy accounting mix ups, either intentionally or unintentionally when you are mixing accounts. Warning bells should be going off for you now the way you are handling your books. If you are spending $10 on gas and your accounting somehow shows that you are out $20 for it, that is only going to get worse.

If you are using a fictitious business name that differs from your own name and a customer is making a check out to that business name, you will need a business bank account to deposit those checks. If you take that step, why not just keep your business accounting separate from your personal? Each week, write yourself a check from your business as your salary.

By doing this, at the end of the year when tax time comes, you will be thanking yourself for keeping the entire process simple and easy. The last thing you want to do is to have receipts all over the place that you need to manually go through and add up to see where your money went and what you actually made in profits.”

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