Are you someone that’s thinking of starting your own business?
Or maybe you already have and have been for awhile now.
This applies to all types of business owners, whether that be a single person running as a sole proprietor or a large group of people working as a corporation (or even a single person running as a corporation).
One BIG business no-no that any person experienced with running a business will tell you, don’t ever mix your personal and business bank accounts together.
In the finance world, this is commonly referred to as “co-mingling”.
If this is something that may be a big pain for you to do at this point in time or you just don’t get why that’s such a big deal (like if you’re just running a side business as a hobby), let me explain.
When you mix your business and personal bank accounts into one account, you are co-mingling your money together. The second you start doing this, you will automatically lose that awesome liability protection you get when you incorporate your business.
Meaning when you make your business entity either an LLC or corporation, you get this super handy protection from any person or business from going after your personal assets.
For example, let’s say you created an online training program to help improve business’ social media following and someone signed up and took it. Through some big turn of events, let’s say they ended up losing thousands of dollars of money that they had invested into growing their social media presence. They could then attempt to take legal action against you for damages that may have been caused to their company via your training program.
If you don’t have liability coverage as part of your business entity then you have the possibility of losing personal assets as a way to compensate for the damages your company owes.
Scary thought right?
This is the type of situation that ANY business can be liable for and should be prepared to handle properly. If you incorporated your business then you have this hefty liability protection that stops these people from being able to go after your personal assets (so things like a house that you own or other property, cars, land, personal savings accounts, etc.).
That is why it is crucial for the health of your business (and your sanity) to have completely separate personal and business bank accounts.
They need to be seen as 2 separate things by the IRS.
And in case you’re wondering, no, sole proprietorships do not get liability coverage whatsoever. Which is why I would highly recommend you incorporate your business (as an LLC or S Corporation).
Not only will this give you some peace of mind but it also makes your business a lot more official. Like you’re really committing to this and people like people who can show a serious commitment and dedication to what you do.
If you’re in a place where you’re just starting out and aren’t really pulling in any revenue yet and this is not something that can be done right now, just try to keep this in mind for the future. Do it as soon as possible.
I, myself, did not do it for a few years working as a freelance photographer.
If you or someone you know is co-mingling their money right now, let them know to stop it!
And please, share this article if you found it helpful or know someone that will benefit from this information.
Until next time,