One of the top mistakes small business owners make is to intermingle their business expenses with their personal accounts. This can create many issues including:
- Difficulty in identifying true business profitability. When personal and business expenses are in the same accounts, it becomes very difficult (impossible?) to readily determine the company profits or losses.
- Misuse of company money for personal expenses. Whether intentional or unintentional, this can erode financial margin that is critical for the viability of the business.
- Difficulty in selling the business. Even if the business is profitable, it can cause potential buyers to become wary of the true performance of the company.
- Drive the tax preparer nuts. I’ve had conversations with tax preparers who find it nearly impossible to prepare a clean tax return because of intermingled business and personal income and expenses. This can lead to issues with the IRS later. That is never a good thing!
- Frustrates the family bill payer. When the person in the family who is responsible for paying the bills must balance business bills with personal bills, it can cause them to become very frustrated. So frustrated that smoke may start coming out of their ears!
If you are running your business expenses through your personal accounts, invest a few hours to separate them. The bill payer and tax preparer will thank you, and you will be able to more readily assess the performance of your business!
This post is part of a Small Business Series here at the wildly popular JosephSangl.com. Click HERE to read more of the posts in the series.