One of the first things I look at with a new client is simple: does the business have its own bank account and card, and is that the only place business money goes?
When the answer is “mostly,” bookkeeping gets slow. Every Costco run, every Amazon order and every gas stop has to be sorted into business or personal, often months later, by someone trying to remember. Things get missed both ways. Personal costs sneak into business expenses, and real business expenses get lost in a personal account.
The IRS says it plainly in Publication 583: one of the first things you should do when you start a business is open a business checking account, and keep it separate from your personal account.
Here’s the simple version:
One business checking account and one business card. All business income goes in. All business expenses come out.
Pay yourself on purpose. Move money from the business account to your personal account with a transfer, on a regular rhythm if you can. How that transfer is treated (owner’s draw, distribution or payroll) depends on how your business is set up, so ask your tax preparer.
If you slip, fix it the same week. Paid for something personal with the business card? Note it and record it as an owner draw (or distribution, depending on your setup), not an expense. Paid a business bill personally? Save the receipt so it can be recorded as money you put in.
Fix the past once. If this year is already mixed, the catch-up is a one-time job: go through the statements, tag the personal items, and start clean from here.
If you have an LLC, it’s also worth asking your attorney how mixing funds could affect the protection the LLC is supposed to give you. That’s a legal question, not a bookkeeping one, but it’s a good reason to keep things separate.
Hypothetical: a handyman runs everything through one personal checking account. At year-end, 1,100 transactions need sorting. With a separate account, that same year would mean sorting only the handful of slip-ups.
If you’d like help separating things out, or cleaning up a year that’s already mixed, send me a message through the Contact page.
— Rachel, Two Miles LLC