You stopped at the gas station to get some gas and in a hurry, you grabbed your business card and quickly swiped it at the pump. Before you even start, you realize your error, maybe say some choice words, and then keep pumping your gas. Or say you are treating your kids to some ice cream and got your business and personal cards mixed up and gave the cashier your business card. In this case, you didn’t even realize it until your bookkeeper or accountant asked you if you took a client out to get some ice cream. No big, you say, I just accidentally used my business card for a personal expense. Your accountant says okay and classifies the entry, and you both go on your way. But do you know the real risks or comingling your funds, or otherwise known as using your business card for a personal expense.

Liability Exposure for Yourself and Business

If you are a sole proprietor that does not have an LLC or corporation for your business, then this doesn’t really apply to you. However, that is you, then you really should investigate starting at least an LLC for your business to protect your personal assets. Here is why.

As a sole proprietor, you can be exposed to lawsuits. In this case, a person can sue you for all your assets, whether related to a business or not. Therefore all business owners should at least have an LLC set up.

Businesses that are already an LLC or corporation, you need to keep your funds separate. When you start to mix personal and business expenses, lawyers can argue that you are using your business for personal reasons, thus opening your personal assets up to liability. This means your home, car, boat and anything else you have of value. Keeping funds separated keeps that legal shield up and doesn’t allow people to sue you and your business.

Lower Accounting Fees!

Yes, the more time that your accountant and bookkeeper must spend on your books, the more you will likely pay. If you keep good records, accountants can work much quicker. When an accountant must question every transaction that a business owner enters, it takes time, and time is money. Make life easier on your accounting professional and on your business by keeping the funds separate.

More Accurate Records

While this can be achieved without keeping things separate, it is much easier to stay accurate when you know for sure that it is a business expense. This also helps when submitting financial statements and records to banks, financial companies and possible investors. People investing in your business will not want to see that you mixed funds all the time, and it is very easy to tell when this happens. Any competent accountant will be able to spot this immediately, thus potentially lowering the value of your company.

All these reasons are excellent reasons to keep your expenses separate, and at the end of the day, you are running a business, so you need to treat it that way. Keep all personal and business expenses separate so that you always have a good pulse on your business. When you do this, you have a better idea of how you are doing and you will sleep better knowing that you are always protected in a legal sense. Talk to use if you have any questions about best practices to keep your funds separate from each other.