Why Co-mingling Funds is Extremely Dangerous
One of the most common pitfalls for new business owners is mixing personal and business money—commonly known as co-mingling funds. Although it may seem convenient initially, combining these funds can lead to significant legal, financial, and tax problems.
This overview explains what co-mingling funds means, why it is risky, and provides actionable steps to keep your finances clearly separated.
Understanding the Risks
Co-mingling funds occurs when you use the same bank account or financial resources for both personal and business expenses.
Definition: The practice of mixing personal and business money, which can create confusion and legal complications.
Risks Include:
Increased legal exposure, as personal assets may be at risk if your business incurs debt or legal issues.
Difficulties in tracking expenses and claiming accurate tax deductions.
Complicated bookkeeping, makes it hard to assess your business’s true financial health.
How to Avoid Co-mingling Funds
Open a Dedicated Business Bank Account:
Set up a business bank account like Novo exclusively for your business transactions, ensuring all business income and expenses flow through it.
Establish Clear Financial Policies:
Create guidelines for yourself (and your team, if applicable) that prohibit using the business account for personal expenses.
Utilize Accounting Software:
Use digital tools like Quickbooks to track and categorize every transaction accurately, so there is no mix-up between business and personal spending.
Conduct Regular Reviews:
Periodically audit your bank statements and financial records to ensure that only business transactions are recorded in your business account.
Imagine if you mixed your school supplies with your toys in one box—finding what you need when it’s time to do homework would become very challenging. Keeping business and personal funds separate works the same way; it ensures you always know exactly what money is available for your business.
To protect your assets and maintain clear financial records, consider using business bank accounts from providers like Novo or Mercury. Their modern platforms make it easy to manage your money without mixing personal and business funds.