How co-mingling is killing your business.

After creating a bankable product, you invest a huge capital into the business. Your business starts off fairly well, and a while after, it begins to yield profit. However, you had made the mistake of mixing your personal money with your business money, so now it’s hard to tell what belongs where.

That is co-mingling.

If you find yourself using the same bank account for your business and personal needs, paying for personal expenses with your business account without due documentation, or using your personal bank account to receive money from a client, you’re definitely co-mingling funds, and that is dangerous to the trajectory and existence of your business.

In this article, we’re going to discuss how co-mingling is affecting your business, and how you can rectify it.

Co-mingling can be hard to avoid, particularly if your business is still new and appropriate systems aren’t in place to handle certain operations like finances. However, there are major downsides of co-mingling.

Here are some of them:

• Inability to keep track of your business performance: Comingling makes it difficult for you to track business and personal expenses. When you use the same bank account for your company’s and your personal expenses, it would be difficult to know the entries to consider when you are compiling your accounts. It also makes it hard to track your revenue growth. Besides the arduous task of manually inspecting your bank statements to separate the business and personal expenses; you may also have to spend more money to get it sorted out.
• Tax deduction problem: Business owners can save significant amount in taxes through deductions as allowed by the IRS. If you use the same bank accounts for both personal and business expenses, you will likely run into problems when it’s time to file your tax returns.

How do you prove to the internal revenue services that your expenditure checks out if you can’t even differentiate your business expenses from your personal expenses?

This presents your business in bad light and can get you into serious legal issues with tax officials.

• Difficulty in accessing loans and raising capital: When you approach a bank for business loans, some requirements for eligibility are your financial records and your bank statements. When your financial records don’t tally, it could discourage the financial institution from granting your request.
  Also, a potential investor would prefer to know the financial performance of your business before they decide to pump money into it. Co-mingling makes it difficult for you to prove the profitability of your business, and that is no good news for you. Investors want to see a clear separation between personal and business funds, as this demonstrates that your business is being managed responsibly.

• Unnecessary legal issues: Co-mingling has caused serious legal issues for many businesses, as they are usually accused of engaging in tax fraud. This is a serious issue to consider before you mix up your personal funds with your business funds. If your business is structured as an LLC or a corporation, and you have co-mingled funds, you could lose liability protection.

Creditors have the right to make a claim against your personal assets, as they could argue that you LLC or corporation is not a distinct legal entity.

Why you should separate your business account from your personal?

• Easier accounting and bookkeeping: Separating business and personal accounts can make accounting and bookkeeping much simpler. This can help ensure that all business expenses are tracked accurately, reduce tax liabilities and improve financial planning.

• Better cash flow management: Separating your business and personal accounts is a great way to avoid financial difficulties that can threaten the survival of your business. You can easily track cash flow and ensure that your business has the needed funds to cover its overall expenses.

• It makes it easier to obtain funds: Separating your business and personal finances can make it easier to obtain financing from investors, because it demonstrates prudence. This quality makes it easy for lenders to trust you, and will encourage investors invest. It will also enhance your credibility with paying clients, because it shows that you’re truly committed to the success of your business.
• No legal battles for you: If you’re not a fan of legal hurdles, then keep personal and business finances separate can save you the hassle. Not only does it protect your personal assets from shark-like lawsuits, but it saves you from unwarranted debts that could make you lose your personal assets, and sink your business to the ground.

In conclusion, separating your business will save you from legal hurdles, tax problems, and business-sinking debts. Co-mingling is a rookie mistake you don’t want to make as a business owner.

The best approach to averting co-mingling is to keep separate accounts and track your corporate spend to avoid mix-ups and discrepancies. There are numerous digital tools that can help you be on top your finances – business and personal.

Find the one that best suits your needs and adopt it today.