14 Expert Insights On Mixing Personal And Business Banking

When starting a solo business venture, you’ll have to figure out how to handle your new business’ income and expenses. Some entrepreneurs decide to mix their personal and business banking so they don’t have to open a new account. While such a system may seem simpler at first, the situation can quickly become complicated—especially at tax time.

There are many factors for solopreneurs to consider when it comes to money management, so we asked 14 members of Forbes Finance Council to weigh in. Here are their views on mixing personal and business banking and what to keep in mind if there’s no financial separation.

1. Mixed accounts have a limited audit trail.

The big flag I see when mixing personal and business banking is a limited audit trail, which can get to be very hairy as freelancers/solopreneurs grow. The government needs to have accurate record-keeping during an audit, and multiple bank accounts may be ineffective when you’re striving for accuracy. – Pratibha Vuppuluri, Unreasonable Group

2. You need to foster mental separation between your business and personal worlds.

No, you absolutely should not mix personal and business banking. Aside from the importance of legally separating your business finances from your personal wealth, it is important to create a culture in your mind of professional separation. Mixing bank accounts at the beginning can seem innocuous but it forms a series of habits that lead to a further blurring of lines later on. This can plague entrepreneurs when their business takes off. – Morgan Deane, Baader Helvea Group

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3. Investors are looking for financial discipline.

During Covid-19, things are somewhat blurry, but I will always recommend founders maintain the focus to separate personal and business items. When it comes time to seek funding from institutions, this is the discipline that institutional investors will look for in founders. – Amit Sridharan, Mahindra Partners Ventures

4. Commingling finances will complicate your taxes.

Avoid commingling finances. Among the many reasons not to is that it complicates your taxes. Imagine a candy dish filled with M&Ms and Skittles. You can painstakingly rummage to separate the two, but you’ll likely make a mistake. The stakes aren’t high in this case, but when it comes to your business, it can mean missing out on deductions, creating liabilities and not knowing where your business finances stand. – Cameron Peake, Azlo

5. Always record any personal investments or withdrawals.

Mixing business and personal banking is a mistake I have seen many times. It pierces the “corporate veil” and can lead to problems in an audit and if you take on investors. Always have separate business and personal bank accounts, and if you invest or lend money to the business, make sure it is recorded correctly and that you review your bank statements monthly. – Brian Hayes, NOW CFO

6. Don’t accumulate personal debt in building your business.

Taking financial risks is often necessary for entrepreneurial success. With that said, you need to be okay if the business goes to zero. My recommendation is to take on as much risk as you’re comfortable with, but do not accumulate massive amounts of personal debt building your business. It’s one thing to need to go back out and make money; it’s different when that cash is immediately going to debt payments. – Carlo Cisco, SELECT

7. You’re opening yourself up to an audit.

Commingling funds is never advised, as it makes much about accounting and taxes difficult. When you do this, you are opening yourself up for an audit, and it’s just not worth the risk compared to having separate accounts and using them correctly. – Khurram Chohan, Together CFO

8. You’re likely to ruin your personal credit.

Never mix—period. Far too many entrepreneurs do this. Using my old legal hat, 70% to 90% is the failure rate for high-growth businesses. Even recently minted new grads with few assets will ruin their personal credit four out of five times, taking years to recover. There are times where lenders require such guarantees, and it may be unavoidable. In those cases, you should still cordon off some assets. – Andrew King, Bastille Group

9. It’s hard to get a clear picture of your financial health.

Mixing your personal and business finances can make it difficult to get a full picture of the business’ financial health, and you could inadvertently over-leverage yourself and not maintain the proper records to prepare taxes. Try to keep them separate. If you do mix your business and personal finances, it could slow you down when trying to quickly access funding. – Luz Urrutia, Opportunity Fund

10. Mixing finances sets a bad precedent and adds tax costs.

Mixing business and personal banking is a common early mistake and should be avoided if you are serious about your business. There are two major reasons why mixing finances is a bad idea. First, it creates a bad precedent when it comes to liability. Second, when it comes to taxes, it only benefits the government. There are strategies that you should employ to save money on taxes. – Joshua Sherrard, Strategic Navigators Inc.

11. If you must mix finances, review your accounts carefully each month.

Running a business is difficult, and while having clean books is important, so is your sanity. Commingling personal and business expenses happens, so a regular and consistent review of your financials and accounting is paramount for avoiding issues “down the line.” Take the time to review your accounting each month so things don’t get out of control come tax time. – Andrew Lyon, Focused Energy

12. Separate accounts make it easier to track expenses.

Business and personal banking should always be kept separate. From an auditing perspective, this keeps the books clean and it makes decisions easier. For example, if you receive payment for a large invoice and it’s in your personal account, all of the associated business expenses might be unaccounted for, and you could find yourself at a loss later. – Kelly Shores, GCubed, Inc.

13. Mixed accounts require more effort.

In a perfect world, business matters and personal matters are kept separate. When finances blend together, more interpretation is required to distinguish business income and expenses. This gray area leaves business owners with more income and far fewer deductions if an income tax audit arises. Opening a separate account and using it strictly for business will mitigate the risk of a potential tax liability down the road. – Karla Dennis, Karla Dennis and Associates Inc.

14. Open a separate account as soon as possible.

Solopreneurs should never mix personal and business banking. But if there is a blur in the beginning days, try to at least mark in the memo field when transactions are for the business. Then as soon as possible, open a separate account and hire a bookkeeper to reconcile and, for tax purposes, bring in the transactions that hit the personal account. – Robin Campana, Hero Digital LLC – Austin