All business owners know that before their business opens they have expenses. You may have incurred expenses in researching your business, preparing your business plan, advanced rent, remodeling or decorating, furniture and equipment, inventory, advertising or marketing, etc. Since your business wasn't "officially" open many business owners just use their personal checking account and/or personal credit card to pay for these expenses. This seems natural and easy and the last thing a new business owner wants or needs is something more complicated.
As time goes by the business owner may have established a business checking account and perhaps even a business credit card, but the habit of using their personal checking account and credit card has already been established. The business owners don't think twice about depositing business income into their personal account or picking up some personal items when paying with a business credit card. This bad habit has its own name – it's called commingling.
The main problems with commingling are:
- Unless you are very well versed in accounting you undoubtedly have a much bigger mess than you think you do. It's not uncommon for me to see people who have expensed their personal car payments as "auto expense" even though the business doesn't own their car. Even more common is multi-level marketers who purchase and expenses their inventory on their company books, but use it personally.
- Your financial statements
Copyright 2009 StartupNation, LLC
Click here to read more from StartupNation