Clear Financial Boundaries for Any Entrepreneur

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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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Episode Transcript

Eric Bonney (00:03):
Welcome everyone to espresso taxi and small
business essentials where we arebrewing up to test for the
owner led entity by providingeducation on useful tax
strategies and other essentialbusiness topics.
I am your host, Eric Bonney.
Founder of Harvest Tax andAccounting Services and a CPA
with over twenty eight years ofexperience servicing business
owners like yourself.
Each weekly battle table lookat the most pressing tax issues

(00:25):
and the business questions thatsmall business owners are facing
.
Today, we are going to discussthe importance of business
owners keeping separateaccounting records, keeping
their business checking accountseparate from their personal
checking account.
This is probably one of thenumber one pitfalls that I see

(00:46):
routinely with our partners thatwe work with that are sole
proprietors or single memberLLCs.
They are typically using just asingle checking account or a
single credit card and they arerunning both personal and
business through that singleaccount.
Why would it be better forbusiness owners to keep separate

(01:08):
accounts.
One is for financialorganization.
It's just easier to keepseparate accounts for business
and personal it keeps it clearerand it is much easier to
identify what is business andwhat is personal.
If you only have businesstransactions flowing through,
those business accounts.
Another reason why it isimportant to keep them separate

(01:30):
is that when it gets to the endof the year and you're starting
to do your tax returns, or taxreporting to your professional.
It is a whole lot easier.
It's quicker to summarize theinformation in an account if it
only has business transactionsand it doesn't have any personal
information in there.
It also goes a long ways inmaking it simpler for yourself

(01:54):
or for your tax professional torepresent you in the unfortunate
experience that maybe you endup having an audit from either
the IRS or a state agency or ifyou have local taxes as well.
It is just cleaner when we areable to hand over a series of
accounts that are strictly forbusiness purposes only and it

(02:18):
will make that audit process awhole lot smoother and quicker,
which is in everybody's benefit.
There is also some legalprotection to this.
If you have commingling of yourfunds and you are an LLC, then
it could go a long ways ineliminating that personal

(02:38):
liability that you tried to setup the LLC for by co mingling
those funds it might make itlook like you really aren't
operating as a true business anda true professional.
Also, it just looks moreprofessional.
If you are a business and youare going to be performing

(03:00):
services for your clients orcustomers and if they are paying
you and it's going directlyinto your personal account, or
if you have to write checks toyour vendors and they are coming
from your personal account.
It just doesn't look asprofessional as it might if you
were issuing a payment out of abusiness checking account with

(03:21):
your business name tied to it,or if they were making payment
to you and they were writingyour business name on there, as
opposed to just your personalname.
One other reason why you wouldwant to keep your stuff separate
is it is easier to do thingslike if you wanna set up a
budget, it's easier for you tobe able to do cash flow.
If you're looking at yourhistorical data, and you're able

(03:45):
to tell that in these accounts,it is only business and nature.
It's much easier for you to beable to try to do some planning
and for you to be able to try todo some cash flow analysis and
things of that nature.
So If your entity is taxed asan S corporation or partnership
or maybe it's a sole proprietor,what we typically recommend to

(04:07):
our partners is if you needmoney to be able to live on and
you need to spend and do yourpersonal stuff, go through the
extra step of writing yourself acheck from the business
checking account, deposit itinto your personal account, or
do an electronic transfer fromthe business to the personal.
Yes, it does seem like it isgoing to be an extra step and it

(04:28):
can feel like it might be ahassle.
But it really does go a longways in helping you maintain
that separation between thebusiness and the personal, and
it just helps to keep things awhole lot cleaner.
Also, by keeping those businessaccounts separate from your
personal account as a businessowner, it will help you be able
to better take advantage of thevarious accounting packages that

(04:52):
are available to small businessowners that will help you
streamline your accountingprocess.
Overall, keeping thingsseparate can help you as a
business owner save time, reduceyour risk in case of litigation
, and also have you have a muchbetter and more effective method
to be able to manage yourbusiness.

(05:13):
Thank youfor joining me today for this
episode of EspressoTax and SmallBusiness Essentials.
Don't forget to sign up for amonthly newsletter.
And if you have a specific copythat you would like
to hear me cover here on theshow, please send me an email at
espressotax at harvestcpa firmdot com.
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and pop the rest of the topic.