Why Mixing Personal and Business Finances Creates Problems Later

Recently, I worked through a bookkeeping cleanup project for a family farming operation. One of the biggest problems they had wasn’t finding receipts, it was trying to figure out which transactions belonged to the operation and which transactions were personal.

Many small service businesses, farming operations, and contractors start on a small scale, working out of their home, their personal vehicle, and their personal bank account. Business develops and expands over time. They gain more customers, hire employees, and find new sources of income and expenses. Sometimes these businesses forget to move their operations into a separate bank account.

This can become messy, especially if bookkeeping isn’t kept up to date consistently. The family farm I was working with had years of bookkeeping to catch up on, past years of taxes to file, and mixed personal and business expenses running through the same bank account with no bookkeeping system in place.

We started from scratch. We printed bank statements and spent hours working through each transaction, trying to remember if that feed store purchase was for feed, fencing supplies, or a new grill. It was a process and an overwhelming one for this family at that.

Simply starting with a separate business or farm bank account could have saved us so many questions throughout the entire cleanup process.

Another big issue with a combined personal and business account is knowing whether the operation is actually making money. It’s difficult to see the true profit or loss of a business when income and expenses are blurred together with personal transactions. If you can’t clearly see your numbers, it becomes much harder to make good decisions, trim unnecessary expenses, and maximize profits.

Your operation doesn’t need a complex system. You need a simple solution to keep this problem from happening in the first place. Your business should have a dedicated bank account with a debit card. Deposit income into this account and pay expenses from this account. And write it down as you go. No expensive accounting software. Just a ledger. Handwritten, if that’s your style.

And if your business or operation has years of mixed personal and business transactions, don’t panic. It can be sorted out. The process is simply much easier when good systems are put in place moving forward.