Why You Shouldn't Pay for Personal Expenses From Your Bank Account

The line between your professional and personal life isn't always clear. You probably bring work home or handle family tasks during work hours. When you're running a business, you have the freedom and flexibility to mix work with life.

However, there are times where it makes sense to draw a hard line between the two. You don't want work problems to pull you away from a date night with your partner or one-on-one time with your kids. Similarly, it's essential to draw a clear distinction between your personal and business bank account.

Mixing professional and personal funds could expose you to problems in a few key areas.

Cash flow

It can be nearly impossible to understand your company's cash flow status if you're pulling money out for personal reasons. As the owner, that money may be technically yours, but your personal expenses need to come out of personal accounts.

If you routinely siphon money out of your business to pay for things like groceries or your mortgage, you can't get an accurate grasp on the financial health of your company. Cash flow management is an essential skill for your business's success.

Taxes

When it's time to file taxes, you need to be able to access your business income and expense information easily. If personal transactions are in the mix, it'll take time to sort them out, especially if you wait until tax time to identify and categorize expenses.

The closer you get to tax season, the less clear your memory will be as to which expenses were personal versus business, and you could mistakenly overlook legitimate business deductions.

Legal issues

Using your business bank account for your own expenses can expose you to potential legal and financial trouble. If your business is a corporation or an LCC, your personal assets are protected from professional liabilities if your business fails or is sued. However, if you pay personal bills from your business account, you could negate that protection. This is known as piercing the corporate veil, and the court could order you to be liable for business debts.

Professionalism

In an audit, using your business account for personal reasons could make it look like you're draining company funds for your own gain. That could make investors or business partners think twice about working with you. Stakeholders could even sue you for misappropriation of funds.

Use best practices

Instead of being tempted to use business funds, make sure you regularly take a salary or profit distribution. It's easy to set up an automated lump-sum transfer every week, 2 weeks or month. That way, you won't have to dip into business funds if you need cash for yourself.

Use your business bank account only for actual business expenses. Then have a dedicated system for your business finances. You can use a tool, such as QuickBooks, or hire a bookkeeper. Be sure to keep business and personal receipts separate as well. Having a business process in place will help you maintain transparent accounting practices.

Open a business credit card and checking account for a convenient way to pay for business expenses. These methods help you at tax time by making it easy to generate reports. You can also establish a business credit card and pay your bill on time to help build your business credit score.

Be diligent about separating your purchases. As a small business owner, you may combine errands and buy items for yourself and your business at the same time. Always separate the purchases, and ask the cashier to ring up the purchases in two transactions.

Keeping your business and personal accounts separate is a smart way to manage your money and your business. When you set up the proper structure and follow best practices, you help build and maintain the financial health of your company.