Clear Financial Boundaries for Any Entrepreneur

Unravel the financial entanglement of personal and business expenses with me, Eric Bonney, as we navigate the essential practice of maintaining distinct accounting records for your entrepreneurial endeavors. With nearly three decades of experience, I break down the barriers to clear and professional financial management that many sole proprietors and single-member LLCs face. This episode arms you with knowledge and strategies to streamline tax preparation, reinforce your LLC's liability protection, and elevate your business's professional image.

Embark on a journey to financial clarity as we discuss the undeniable advantages of a dedicated business checking account and how it simplifies everything from audits to cash flow analysis. Learn how a simple act of transferring funds to your personal account can be the key to long-term business clarity. Plus, gain insights into leveraging accounting software to maximize efficiency in managing your business finances. Essential tips and actionable advice await, so be sure to subscribe to our monthly newsletter for more invaluable guidance.

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Transcript

Eric Bonney: 0:03

Welcome everyone to espresso taxi and small business essentials where we are brewing up to test for the owner led entity by providing education on useful tax strategies and other essential business topics. I am your host, Eric Bonney. Founder of Harvest Tax and Accounting Services and a CPA with over twenty eight years of experience servicing business owners like yourself. Each weekly battle table look at the most pressing tax issues and the business questions that small business owners are facing. Today, we are going to discuss the importance of business owners keeping separate accounting records, keeping their business checking account separate from their personal checking account. This is probably one of the number one pitfalls that I see routinely with our partners that we work with that are sole proprietors or single member LLCs. They are typically using just a single checking account or a single credit card and they are running both personal and business through that single account. Why would it be better for business owners to keep separate accounts. One is for financial organization. It's just easier to keep separate accounts for business and personal it keeps it clearer and it is much easier to identify what is business and what is personal. If you only have business transactions flowing through, those business accounts. Another reason why it is important to keep them separate is that when it gets to the end of the year and you're starting to do your tax returns, or tax reporting to your professional. It is a whole lot easier. It's quicker to summarize the information in an account if it only has business transactions and it doesn't have any personal information in there. It also goes a long ways in making it simpler for yourself or for your tax professional to represent you in the unfortunate experience that maybe you end up having an audit from either the IRS or a state agency or if you have local taxes as well. It is just cleaner when we are able to hand over a series of accounts that are strictly for business purposes only and it will make that audit process a whole lot smoother and quicker, which is in everybody's benefit. There is also some legal protection to this. If you have commingling of your funds and you are an LLC, then it could go a long ways in eliminating that personal liability that you tried to set up the LLC for by co mingling those funds it might make it look like you really aren't operating as a true business and a true professional. Also, it just looks more professional. If you are a business and you are going to be performing services for your clients or customers and if they are paying you and it's going directly into your personal account, or if you have to write checks to your vendors and they are coming from your personal account. It just doesn't look as professional as it might if you were issuing a payment out of a business checking account with your business name tied to it, or if they were making payment to you and they were writing your business name on there, as opposed to just your personal name. One other reason why you would want to keep your stuff separate is it is easier to do things like if you wanna set up a budget, it's easier for you to be able to do cash flow. If you're looking at your historical data, and you're able to tell that in these accounts, it is only business and nature. It's much easier for you to be able to try to do some planning and for you to be able to try to do some cash flow analysis and things of that nature. So If your entity is taxed as an S corporation or partnership or maybe it's a sole proprietor, what we typically recommend to our partners is if you need money to be able to live on and you need to spend and do your personal stuff, go through the extra step of writing yourself a check from the business checking account, deposit it into your personal account, or do an electronic transfer from the business to the personal. Yes, it does seem like it is going to be an extra step and it can feel like it might be a hassle. But it really does go a long ways in helping you maintain that separation between the business and the personal, and it just helps to keep things a whole lot cleaner. Also, by keeping those business accounts separate from your personal account as a business owner, it will help you be able to better take advantage of the various accounting packages that are available to small business owners that will help you streamline your accounting process. Overall, keeping things separate can help you as a business owner save time, reduce your risk in case of litigation, and also have you have a much better and more effective method to be able to manage your business.

Eric Bonney: 5:13

Thank you

Eric Bonney: 5:13

for joining me today for this episode of EspressoTax and Small Business Essentials. Don't forget to sign up for a monthly newsletter.

Eric Bonney: 5:20

And if you have a specific copy that you would like

Eric Bonney: 5:22

to hear me cover here on the show, please send me an email at espressotax at harvestcpa firm dot com. There are links in showrooms for both the monthly newsletter and pop the rest of the topic.