Don’t Make These Scary Mistakes with Your Business Finances!

There are so many scary mistakes you can make in your business finances when it comes to yoru bookkeeping… Don’t let it happen to you!

Now before I jump into the nitty-gritty, I just want to take a moment and say, I know this can be a scary topic. Am I making a mistake? Am I missing something?

I don’t want you to walk away with those feelings. I want you to walk away feeling empowered and encouraged that you’re on the right track. If you find yourself in any of these categories, it’s okay.

Don’t walk in the shame. Let’s do the things that I’m going to recommend to do instead, so that you can get a little more comfortable with your numbers, a little more confident with your business finances, not be afraid of them, but start to feel empowered and excited about them.

Mistake #1, and this is a big one, mixing your business and your personal expenses.

Not only is this a mess for tax season and tax purposes it can also create huge messes all year long. I’ve actually had clients come to me saying, “I have literally had to take my personal checking account, go through every month, and make sure that none of those transactions were business. Then pull out anything that was for business and it was so time-consuming.”

But that’s not even all of it… Every time I post about this on social media about this, attorneys will jump on there and say, “Yes, this is a big deal.” That is because, especially if you are an LLC, if that’s how you’re legally structured. It can actually mess up some of your LLC status if you start to mix too much personal and business expenses together.

And that is because of a term that you’ll hear called breaking the corporate veil. That just means an LLC, the purpose of it is to protect your personal assets from your business assets. But, if you start to mix your personal and your business too much, then it is hard to figure out which is actually business and what is really personal which makes it all muddied and the protection. That is another reason that you really want to make sure, especially if you’re an LLC, that you have some other way to separate your business and your personal expenses. 

Mistake #2, not creating a separate checking account for your business.

Now, this can actually be simple and it doesn’t necessarily have to be anything on your legal structure. Notice, I just said a separate account, not necessarily a business account. Sometimes a separate personal checking account will work. You just might have trouble with your bank actually getting that set up. If you’re a sole proprietor, you should be able to set it up just using your social security number and then doing like a DBA type account. 

Like I said, sometimes banks will be kind of tricky and hard to work with on that. It might be easier to just set up a business account. The main point is just to have something separate so that you’re flowing all of your business transactions through there. Then you can set up your subscriptions to come out of that account and any payments to contractors or vendors. It keeps it nice and clean because it’s only business transactions going through that account. 

Most of my clients have been very happy with capital one and their business checking account as well as their spark credit card. So that is one company you can look into if you need to set up a separate bank account. You could also just go to your local bank, but again, you might have some limitations with that.

Mistake #3, not having a system to manage your receipts.

Now this one can feel super tedious sometimes especially if you are dealing with paper. But it’s actually really important, especially if you ever got audited by the IRS.

Basically, the IRS agent is going to want proof of your transactions that they were actually for business purposes and that’s why you took them as a tax deduction. So, you really need to have some system to manage your receipts. 

A few different things you could do to get control of your receipts are:

• Take pictures of them and set up a Google drive or a folder on your desktop. Maybe categorize them by month and then actually have all your receipts stored in a file just so they’re easily accessible and you’re not sorting through a box of paper. That’s an easy way to store them because the IRS can request receipts from several years back.
• If you’re a quick books user, you can also add this into QuickBooks. The cool thing about it is that it will attach it to the transactions that are flowing through your banking tab. That’s kind of fancy because you can go to that expense transaction, let’s say, and then click into the little paperclip and it will show you the actual receipt attached straight to that transaction. Another really cool thing about it is that you can use the QuickBooks app and take a picture. Just straight from your phone. That really comes in handy if you’re doing any kind of travel or if you’re out with meals or entertainment with clients and you want to not have to worry about keeping up with the paper. You can just snap a receipt and it will go straight into your QuickBooks account. 

Those are a few different ways to just start thinking through how you are going to manage your receipts. Make sure that you have some kind of system that is simple and easy and works for you. This helps you be confident that you can get back to those things. 

It’d be pretty easy to prove if you have, let’s say, a Gmail account subscription or Dubsado or Honey Book because those are the same amount every month. You could probably just go to those vendors’ websites and easily find your subscription and the price that you’re paying and be able to prove this is the same amount and this is the subscription that I’m under. 

It’s a lot harder to prove a Starbucks charge or an Amazon charge. Was this actually office supplies or was it for pajamas? It would be very hard to figure that out. And so those are the ones you especially want to pay attention to is having proof of those kinds of business purpose transactions and why they were actually for a business purpose.

The final mistake, not having a budget for your business.

Hang with me. I was just talking to one of my business friends and she was telling me, “every time I hear the word budget, it makes me feel gross.” I don’t want to do that. It makes me feel like I have to be on a financial diet when I hear the word budget.”

And I thought, wow, what a great description because so many of us can feel that way, right? But a budget will actually keep you from shiny object syndrome. It will help you stay focused on what the next steps are that you need to take in my business, what the next purchases are you can make, and will give you freedom to actually spend that money. 

If you’re like some of the clients that I’ve worked with, sometimes you want to spend money on all the things. Which I totally get. Others of my clients actually feel somewhat scared to spend money. They need some freedom to feel like it is okay to invest in their business. 

That is all things that a business budget will help you do. And good news, I have a resource just for this – BUDGETING FOR YOUR BUSINESS.  

Now, we are going to go back to explaining just a little bit more about breaking the corporate veil.

This is what happens when your personal and your business expenses get mixed together too much. When this happens you may actually have to start using some of your personal assets to satisfy any business debts and liabilities. This is what an LLC or a limited liability corporation status is supposed to help prevent you from doing.

Make sure that is a key point, especially if you’re an LLC. One or two times you accidentally use the wrong card, you’re going to be okay. But you just don’t want this to be a pattern and a habit. You want to have a better system for keeping those things separate and tracking your personal and your business separately.

In summary, we’ve talked about:

• Not mixing our personal and business expenses
• Not creating a separate checking account for your business
• Not having a system for managing your receipts
• Not having a budget for your business.

These are all mistakes that I see business owners make that you want to avoid!

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