When starting a business, financial discipline is key to long-term success. Yet, one of the most common mistakes entrepreneurs make is co-mingling personal and business funds. At first glance, it may seem harmless to dip into your business account for a personal expense, but this habit can have serious repercussions for both your business and your personal finances.
As Jog Bondoc, Registered Financial Planner, explains, “Your business is a separate and distinct entity from you. In short, your business is not you and vice versa.” Co-mingling funds, or mixing personal and business money, is a recipe for disaster. It can complicate your financial records, create confusion during tax season, and even lead to legal issues down the line.
One of the biggest issues with co-mingling is the disruption it causes to your financial books. “Not only does it become a nightmare for whoever handles your financial records, but it can also hinder your business’s growth prospects,” says Bondoc. Keeping personal and business funds separate is crucial for maintaining accurate financial records, which are necessary for making informed business decisions, securing funding, and filing taxes accurately.
In the early stages of a business, it’s tempting to take money from your business account to cover personal expenses, especially when cash flow is tight. However, Bondoc advises sticking to a reasonable salary. “Identify a reasonable salary for the role you’re playing in the business—whether CEO, COO, or otherwise—and stick to it. This approach allows your startup to have more financial flexibility without compromising its growth potential.”
To avoid this costly pitfall, it’s essential to open a separate business account. This will not only help keep your finances organized but will also give you a clearer picture of your business’s financial health. By avoiding co-mingling, you are setting the stage for future success, ensuring that your business and personal finances remain distinct—and your growth potential stays intact.
As Bondoc concludes, “Keep things separate, stay disciplined, and watch your business thrive.”
