Keep Your Accounts Separate - Why Commingling is Dangerous!

Small business owners tend to begin their business as a hobby or side-gig until it's successful enough to support itself. This is a great approach, but it one thing that often ends up happening when businesses form in this manner, is the owner's personal and business bank and financial accounts are one in the same. This is known as commingling, "treating your business funds as your personal money, whether buying or selling."

We get it, since you likely used your personal money to start the business, it can be tempting to keep all your personal and business funds and accounts together. It's just logistically easier to do so for some small business owners, but we're here to tell you this is a bad idea! Separating your finances is one of the most important ways you can protect the the limited liability of your company. Lawyers describe this as the "corporate veil" or the liability barrier between your personal and business accounts. 

Often when people commingle funds, they are not intentionally breaking the law, rather just doing what is easier. Common ways people commingle money in a business setting include: 

• Having a single bank account for all personal and business expenses and collections
• Writing checks from your personal account to cover business expenses
• Writing checks from your business account to cover personal expenses
• Depositing personal checks into your business account and vice versa
• Withdrawing money from your business account to pay for personal expenses with out proper documentation and vice versa
• Not having a set salary for your work at the company, but rather withdrawing profits at will

The main danger in commingling funds, aside from a tax headache at the end of the year, is what's commonly referred to as "piercing the corporate veil." This means creditors and the federal government can seize your personal assets including your home, personal savings, and so on in the event of the company's failure because the lines have not been adequately drawn between the two. In the event your company gets sued, if you do not have an adequate corporate veil, all of your personal assets can be at risk as well. According to Legal Information Institute, "courts put aside limited liability and hold a corporation's shareholders or directors personally liable for the corporation’s actions or debts."

If you would like help in separating your business and personal accounts to protect yourself from an event of piercing the corporate veil, please contact Tally Services. We would be glad to walk you through the ins and outs of business accounting to ensure accounts are set up correctly, proper documentation takes place, and your personal assets are safe.