Do I need a separate bank account for my business?

Yes. And of everything a bookkeeper will ever tell you to do, this one costs the least and saves the most.

Here's what actually goes wrong when your business and personal money share an account. Every transaction becomes a judgment call later. Was that $92 at Costco inventory, or groceries, or both? At the moment you knew. Six months from now, staring at a bank feed, you don't. Multiply that by a few hundred transactions a year and you've turned your own records into a guessing game.

That guessing has a real cost. Every business expense you can't confidently identify is a deduction you probably won't claim, which means you pay tax on money you actually spent running the business. On the other side, if you ever get a letter from the IRS, "commingled" personal and business funds is one of the first things that makes an audit painful, because now every deposit has to be explained. If you're an LLC or corporation, mixing funds can also weaken the legal separation that protects your personal assets. That's a bigger deal than most owners realize.

How to fix it is boring, which is the point. Open a business checking account and a business debit or credit card. Run every dollar of income and every business expense through those, and nothing personal. When you need to pay yourself, transfer money from the business account to your personal account on purpose, as its own labeled transaction. That's it.

When to do it: the day you start the business, or today if you already started and skipped this step. There's no bad time to draw the line, and the sooner you do, the less history there is to untangle.

If your accounts are already tangled together, don't spiral about it. Separating and cleaning up commingled books is one of the most common jobs we do. We'll sort what's business from what's personal and get you a clean line going forward.

Related reading: What does it actually mean to "reconcile" your accounts? · What are quarterly estimated taxes, and do I actually have to pay them?

True North Co · Bookkeeping for small businesses · Hugo, MN

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