If you only do one thing to improve the financial life of your business, do this, if you haven’t already done so:

Open a separate business checking account for your business.

“But I’m a solopreneur, that’s more complication than I need.”  I’m all for simplicity, and if you’re a sole proprietor, you can maybe get by with one account for personal and business.  (I still think it’s a bad idea – you have a business, run it like a business.)

If, however, you have formed a Limited Liability Company, don’t even think about co-mingling your personal and business checking, even if you’re a micro business.  Remember the purpose of an LLC – it’s to protect your personal assets if your business is ever sued.  How protected do you suppose the money in your personal checking account would be if that’s where the money from your business is?  Clearly, not at all.  (We could talk about the “corporate veil” here, but I’m sure you get the drift without the legal speak.)

And for Pete’s sake, never pay personal expenses out of the business account.  That’s just another way of co-mingling your money.  When you want to take money out of the business, do it the right way:  transfer money to your personal checking account, and classify it as an Owner’s Draw.

On the flip side, don’t pay business expenses from your personal account.  If there’s not enough money in your business account to pay for an expense, transfer money from your personal account to your business account, and classify the transfer as Owner’s Contribution.

Start the year right, and take care of this now.

Share This