Small Business Accounting: Don’t Mix Business with Pleasure (or Your Business with Personal Expenses)

by | Dec 8, 2017

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It’s always an exciting time when you’re ready to take the next step in life and buy a home. But finding that perfect home can be a challenge, especially if you’re not familiar with the real estate industry. That’s where Danielle comes in. With over 7 years of...

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Small business accounting and bookkeeping intelligence can help increase your chances at small business success–in today’s blog, we’re wrapping up our series about the six good habits that are vital to successful small business management. We’ve talked about reconciling accounts, paying bills on time, staying on top of receivables, keeping up with payroll and sales taxes and mastering your mail. Today, we’re tackling possibly the most challenging of the six habits: keeping your business expenses separate from your personal ones.

It’s more difficult than it sounds—especially for the proprietor of a company. After all, your small business is your life, and vice versa. However, with a little dedication and a few relatively simple small business accounting tricks, it’s possible and can help you avoid some major headaches.

One reason entrepreneurs like you might choose to run personal expenses through their business: reducing their tax liability. I’ve got three letters for you: I-R-S. If an auditor comes knocking on your door, an inordinate number of personal expenses attached to your business account can cost you. Also, keep in mind (and make sure employees know) that the IRS requires an invoice or receipt for any expense you deduct more than $25. You’re probably not going to be in huge trouble if it turns out you’ve just run a few dinners or Uber rides through your company tab, so don’t fret too much. However, if the taxman discovers you’ve claimed thousands of dollars of personal stuff as business expenditures, then it’s time to worry—you’re looking down the barrel of expensive penalties, or even jail time.

Aside from the pricey IRS implications, mixing business and personal expenses in small business accounting can muddy the waters and make it hard to determine whether your business is actually profitable or not. It’s difficult to plan for the immediate future and long term when you’re not sure how you’re doing. What’s more, if you’re looking to raise venture capital or sell your business down the road, you’re going to need to demonstrate to potential investors or buyers what it actually costs to run the business, if you’re turning a solid profit or not, and if you’re operating a lean outfit. Imagine how it’d look to the people you’re trying to get money out of if you, say, spent $3,000 at Starbucks on the company dime last year, or if you bought all your groceries with your business credit card. If you’re paying yourself a salary or making monthly draws, it’s a good idea to take that money out in modest, regular increments, as partner draws or owner distributions.

The list of solutions to the problem of mixed-up accounts is relatively straight-forward. Make sure you have separate, dedicated checking and credit-card accounts—even if you’re a one-person outfit making all the purchases and paying all the bills. Then, try and keep the checkbooks and cards in separate places—different locked drawers of your desk, or different sections of your wallet, for example—to cut the chance of mixups. If you need any more advice or tips on keeping the divide in place, feel free to reach out to me at daliah@fritzfinancialsolutions.com and I’ll be happy to talk you through it, and tell you more about our professional small business bookkeeping services.

Client Spotlight: Danielle Suchala Klausing

It’s always an exciting time when you’re ready to take the next step in life and buy a home. But finding that perfect home can be a challenge, especially if you’re not familiar with the real estate industry. That’s where Danielle comes in. With over 7 years of...

Who is responsible for payroll?

One of the most expensive resources for any business is payroll. It’s also one of the most important. We are firm believers that people are your most valuable asset, so it’s no wonder that payroll gets costly. Especially if you are a professional services company, and...

Let’s just Write it off! 

Ahhh the joys of being a business owner. You get to set your own schedule, be in complete control of your success and of course, deduct your business expenses.   Just like all of those statements, there are some pros, cons and a lot of misconceptions that go...

How to beat tax stress

It's March and that means two things:   Tax season is in full swing.   Chicago winter is about halfway over.   There isn‘t much a financial consultant can do when it comes to the weather, but when it comes to making your tax season less...

Meet the team: Eileen Manaloto, Sr. Accountant

Despite a job market full of unique challenges, My Small Business Pro was incredibly fortunate to bring on a new team member last year, Eileen Manaloto. Like many small businesses, we got creative in finding the right resource to support our amazing clients and fit...

Back to the Financial Future! 

A new year is upon us! While there’s a tendency to charge into 2022 with new hopes, plans and goals; but you need to pump the brakes. One of the most prudent things you can do is slow down and take some time to do a serious review of your past. Last year is full of...

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