Before the bookkeeping side, I think that it’s good to note the legal side of things.
Commingling funds may make it harder to draw a clear line between personal and legal funds. No one would like to have legal claims, but commingling funds may make the unpleasant event even more bitter.
You may put your personal finance at risk.
But I’m not a lawyer so enough about scaring you for possible legal issues that you may have (I do still think that this should be the biggest reason you separate the two, though).
For bookkeeping and accounting, why you should separate business and personal finance?
1️⃣ To avoid unnecessary time spent on identifying the business transactions
When business and personal funds are mixed, you will have to spend time identifying business transactions from all.
I see this time as “unnecessary” because it can be avoided just by having separate accounts.
You are running a business and are already busy. Don’t you want to spend your valuable time on something that brings more sales or with family and friends, instead? 🙂
2️⃣ To accurately keep the books for an accurate tax filing
When an account has a lot of transactions, it becomes easier to miss business transactions or accidentally include personal transactions in your books.
If you miss including business transactions, you may be missing some deductions (= you may end up overpaying taxes).
If you include personal transactions, if you get audited, the issue may come up.
3️⃣ To avoid overpaying a bookkeeper/accountant
When business and personal funds are commingled, a bookkeeper will need to spend more time communicating to identify business transactions, categorizing transactions, reconciling accounts, etc.
Because of more hours to be spent and the higher volume of transactions to be reviewed, it probably costs more to hire a bookkeeper or accountant.
Commingling personal and business transactions can causes you to spend more time and money, and none of the business owners would like that 🙂
