If you own a limited liability company (LLC) you need to avoid mixing business with pleasure when it comes to money. Commingling is the term for when you mix your personal and company finances and it becomes hard to distinguish what is what.
The primary reason to create your company as an LLC is to keep the business separate from your personal life. It prevents someone from claiming your home or personal assets due to problems with your business. Instead of an issue being the fault of you, John Smith, it is the fault of John Smith Hardware LLC. They are two separate entities as far as the law is concerned.
How might you commingle business and personal assets?
Here are some things to watch out for:
- Paying business cheques into your personal account: Make sure you open separate business accounts when you start your business and keep funds separate.
- Buying personal items on the company credit card: You are out with your family and need gas for the car. You reach into your wallet and realize you have left your personal credit card at home, yet have your company card. Paying for personal gas with your company card could leave you with problems when the tax office looks at allowable expenses. If they find you did one thing wrong, it will encourage them to delve deeper.
- Using personal money for business: A supplier turns up and you do not have enough in your business account to pay them, so you write them a cheque from your personal account. If you need to move personal money to your company, it needs to be well documented.
Choosing the correct business entity and understanding the rules it imposes will give your business the best chance of succeeding. If you fear you have already commingled assets there may be ways to address the situation.