As human beings, we like making things easy – which is why most people look at having separate accounts for their business and personal funds as a bad idea.
“Two accounts?” we think to ourselves. “Double the bank fees? Twice the work for account reconciliation? No thanks! I’ll just do the smart thing and combine them – after all, it doesn’t hurt anyone…”
Wrong. Mixing business and personal funds can hurt you quite a bit in the long run. Here are three reasons why this common misconception is never a good idea.
1. Bookkeeping Will Take Twice as Long
You may think that you’re saving time by combining your funds into one account, but once that account needs to be reconciled, you’ll have to enter all personal transactions besides those related to your business. Finding certain transactions will become more difficult as you’ll have to sift through twice as many non-related items while keeping everything organized will become much harder.
Save yourself the time and frustration by opening up a separate account for your business funds.
2. Business and Personal Records Can Easily Become Confused with One Another
Whether you’re trying to account for your business income statement or your personal expense sheet, the numbers will almost never add up correctly when entered into accounting software. Unless extensive work is put in to correct the issue, business records will show your personal deposits as extra income, while your personal expenses will be largely overstated due to business charges. Business reports will inadvertently display false numbers, while personal records will show large discrepancies in charges and payments.
Prevent a small accounting error from turning into a disastrous tax issue by simply separating the two accounts.
3. Businesses That Mix Funds Can End Up Losing Money
Because your records are at risk for errors, mixing business and personal funds can become a huge liability should you ever be audited – as any tax agency that reviews your books is more likely to confuse your personal deposits as extra business income, while disallowing your business expenses as personal ones. This can lead to an adjusted tax refund number, which can cost a business hundreds of dollars that otherwise might have been theirs to keep.
Should a company take steps to avoid this, because it takes longer to distinguish business transactions from personal ones in a mixed account, hiring a CPA to get the correct numbers can cost extra payable hours.
And did you know that when corporations mix funds, their protection is disallowed?
Don’t waste valuable time and money – separate your business from personal accounts and get your finances in order as soon as possible.
