Personal and Business Accounts

The question I seem to be getting over and over is…

How do I separate my personal and business accounts for my company? 

The answer is simple – Treat your business as a separate and distinct being. Structure your business as a real business and don’t commingle your personal expenses, credit, finances, and assets with it.

Unfortunately, many business owners believe there is no harm in depositing business income into their personal checking account or picking up some personal items when paying with a company credit card.

Just look at the McCourt’s, owners of the Los Angeles Dodgers. Josh Fisher, creator of DodgerDivorce.com says “They put no walls between the business and their family life”.”There was virtually uninterrupted commingling of Dodgers money and personal money.” The McCourts reportedly drew more than $100 million from the Dodgers for personal expenses.

Did you know that just recently the Los Angeles Dodgers had to file for Chapter 11 bankruptcy? According to lawyers for team owner Frank McCourt have said that the filing is needed because of a short-term cash crunch; the Dodgers are unable to pay team salaries and money owed to a subsidiary.

Failing to separate your personal and business accounts leads to an accounting nightmare. In order to protect your personal assets, it’s critical to separate your personal money, expenses, and debt from those of your business, or you may give up the legal protections that entity structures offer.

Here are 7 ways to separate your personal and business accounts:

1. Incorporate Your Business – According to entity specialist Megan Hughes of U.S. Tax Aid corporations and LLCs are considered “safe” business structures because they offer protection for their owners.
2. File a DBA – If you decide to operate your business as a sole proprietor you should file a DBA (doing business as) because if you don’t your personal name will be your company name. However, this is a risky structure because you are personally liable for all your business debts and according to the IRS you have a 1 in 7 chance of being audited versus 1 in 50 for incorporated businesses.
3. Set Up a Business Bank Account – Once your corporation or LLC is registered on the Secretary of State’s website and you have obtained a Business Federal Tax ID Number, you’ll be able to open your business’ bank account.
4. Establish a Corporate Presence on the Internet – For your company web site set up a business domain and dedicated email address. Establish social media profiles for your company including a business page on Facebook. If you have a personal site hosted on your business’ servers, it’s best to move it and get a separate hosting account. This goes the same for your email accounts as well.
5. Apply for Business Accounts – It’s smart to have all your business accounts and services in your company name. This includes your business phone number, cell phone, internet, and fax.
6. Get a D-U-N-S Number – A Dun and Bradstreet Number is the most widely used identifying number for companies in the U.S. It enables you to establish a credit file for your business giving your company the ability to establish its own creditworthiness.
7. Use Business Credit for Financing – Many suppliers and lenders extend lines of credit to businesses in order to finance purchases and conserve cash.

Aim to acquire financing from sources like business credit cards, vendor lines of credit, bank lines of credit, and equipment leasing. Stop using personal credit cards for business purchases!

If you have any doubt on whether you have effectively separated your personal and business accounts, think of it this way. If someone wanted to purchase your business and all accounts right now, would it be easy to hand it all over to them without having to go in and change everything?

What other ways are you separating your personal and business accounts?

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About the author

Marco Carbajo is a business credit expert, author, speaker, and founder of the Business Credit Insiders Circle. He is a business credit blogger for AllBusiness, a subsidiary of Dun and Bradstreet and author of “Eight Steps to Ultimate Business Credit” and “How to Build Business Credit with No Personal Guarantee.” His articles and blogs have also been featured in American Express Small Business, Business Week, The Washington Post, The San Francisco Tribune, Scotsman Guide, Alltop, Entrepreneur Connect, and Active Rain.