The Importance of NOT Commingling Funds!
I hate to say it but it’s time we build a wall. Lol wait, let me explain. I’m talking about a solid brick wall that acts as a barrier or fence between your personal and business affairs.
LETS TALK ABOUT IT!
The wall is like an imaginary fence that keeps your personal affairs out of your business, and your business affairs out of your personal. Why is this important? Because commingling funds can and is typically the main cause of piercing the limited liability protective veil that your LLC affords you.
Commingling funds is the act of crossing business and personal accounts for any reason. This means you used your business account to buy groceries for the month instead of using your personal account. Yes, I get it, there are certain purchases that appear personal that are in fact business expenses and can be written off. But that’s not what we are talking about.
We are talking about those truly personal purchases that you make with your business account because you don’t have the right card with you, or you don’t have enough in your personal account. Quite frankly that’s a personal problem and it isn’t for your business to solve. I said it once and I’ll say it a million times. DO NOT COMMINGLE FUNDS!
Commingling funds is not limited just to “business to personal”. It also relates to business to business. You should not commingle funds between businesses or share a business bank account for two separate businesses. Certain things there are just no way around.
If you must pay two separate service fees because you have two business bank accounts, then it may be something you have to do. But what you shouldn’t do is use one account for more than one business. If business A is sued and it can be traced that business A commingles with business B, both businesses may be liable for damages.
Commingling funds jeopardizes your liability. If your liability is endangered, then you went through the process of registering your business, for what? Just to say you, did it? Just to say you have an LLC? Nope. We shall not expose ourselves to liability issues!
So, you are probably wondering what you should do to make sure you are maintaining your liability protection?
Here are 12 things you may consider to help you avoid commingling funds.
- Do not use your personal account for business purchases or use your business account for personal purchases.
- Do not share one business account for multiple businesses. Instead, open separate business accounts for each business.
- Any subscriptions or autorenewal payments for the business should be in the business’s name.
- Any assets you purchase or acquire for your business should be in the business’s name.
- Any liabilities you incur under the business should be in the business’s name.
- You should have a predetermined pay schedule for yourself where you detail how often you get paid and how much you get paid. This needs to be within reason and should not be all of your earnings. You should maintain enough capital in your business to grow it.
- All payments need to be through an account transfer or check where you can clearly see your business name transferring to your personal name.
- All payments need to be consistent. Inconsistencies raise concerns which in turn can compromise your liability.
- If you have separate businesses and you choose to be paid from each of them, then you should determine a pay schedule for each business.
- If business A didn’t make enough to pay you but business B made bank, you shouldn’t double pay yourself from business B to make up for business A.
- Any partnership or sponsorship opportunities for the business needs to be in the business’s name. If you want your personal name tied to it, the sponsorship could read “sponsored by Jane Doe on behalf of her company XYZ, LLC”.
- Any contracts, leases or anything for the business’s should be in the business name.
Now I will say this, pay schedules could be tricky. Some agree with them only if you are a W2 employee for your business, and others do not. I say it is better safe than sorry.
Most businesses don’t like paper trails but maintaining proper documentation for business transactions will help keep you and your business protected. This is a time where your intentions need to be clear, and your actions need to be traceable. The goal is to win on all levels. Yes, you are winning if you start your business. However, you want to continue winning and leveling up. This will require you as an entrepreneur to grow even with your business.
“Don’t Be the Same, Be Better! Hustle Smarter” – SM
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