Are You Commingling Funds in Your Business?

Why Mixing Personal and Business Spending Can Hurt Your Business

A grocery run here. A quick Target stop there. Maybe that vacation Airbnb slipped through too. You have just sat down to review transactions in your QBO bank feed, and there are a few expenses that may not be for the business. Does that sound familiar? Whether intentional or accidental, you are commingling funds. It’s more common than you think. But just because it’s common doesn’t mean it’s harmless.

In this post, we’ll explain what commingling funds is, why it matters, and what to do instead.

What Is Commingling Funds, Exactly?

Commingling funds happens when you mix personal and business finances. This could look like:

• Using your business card to pay for personal expenses

• Transferring money between personal and business accounts without documentation

• Not opening a separate business bank account

  
  

It’s especially common with sole proprietors and brand-new businesses, but it’s something that can sneak in at any stage.

Why Commingling Funds Is a Problem

1. You Lose Clarity on Your Business Finances 

When personal charges are mixed in with your business transactions, your reports stop telling the truth. You can’t clearly see how much your business earns or spends, which makes it harder to plan, budget, or make informed decisions.

2. It Complicates Tax Time 

Commingled expenses mean extra work at tax time. You (or your accountant) will need to comb through every transaction to separate what counts as a legitimate deduction. Miss something, and you could overpay. Guess wrong, and you could raise a red flag with the IRS.

3. It Weakens Legal Protections 

If your business is structured as an LLC or S Corporation, mixing your personal and business finances can “pierce the corporate veil.” That means the legal separation between you and your business could be ignored in a lawsuit or audit, putting your personal assets at risk.

How to Tell If You’re Commingling Funds

Not sure if you’re crossing the line? Ask yourself:

• Do I use one bank account for both business and personal purchases?

• Do I ever reimburse myself without clear records?

• Are there any personal subscriptions, meals, or travel on my business card?

• Is my bookkeeping a mix of personal and business categories?

  
  

If you said yes to any of these, it’s time for a cleanup.

A Real-Life Example

On a recent sales call, I spoke with a prospect who had household expenses coming out of what they called a “business account.” But when I asked more questions, it wasn’t clear whether the account was truly a business account or just their personal account labeled as such.

Here’s the takeaway: you need to treat your business like a business and keep personal and business expenses separate. Not only does this give you back the legal protection of having an LLC, but it also makes it much cleaner to understand your numbers. Plus, it makes tax time far less stressful. 

Spoiler: your tax accountant can only work with the information in your books. If business and personal funds are commingled, deductions could slip through the cracks.

How to Stop Commingling Funds (and Keep It That Way)

1. Open Separate Bank and Credit Accounts

If you haven’t already, open a dedicated business checking account and credit card. Run only business income and expenses through them.

Pro Tip: Once you have a separate business card, make it impossible to confuse with your personal one. Even something as simple as a sticky note can remind you, “This card is for business only.”

2. Get a System in Place 

Use a bookkeeping system (like QuickBooks Online) to track transactions consistently. Set up categories that align with your tax return and financial goals. See: A Small Business Owner’s Guide to Simplifying Your Chart of Accounts

3. Set Yourself Up for Owner Pay 

Instead of using your business card like a personal ATM, create a regular owner draw or payroll schedule. Transfer funds intentionally, with documentation.

4. Reimburse Yourself the Right Way 

If you accidentally pay for a business expense personally, reimburse yourself through a formal reimbursement or accountable plan, don’t just transfer money on a whim.

5. Review and Reconcile Monthly

Make it a habit to review your transactions each month. Clean up anything that slipped through before it becomes a bigger issue. 

Final Thoughts

Keeping your business and personal finances separate isn’t just good practice, it’s a necessity for growing your business. Clean books lead to better decisions, simpler taxes, and stronger legal protection.

Need help untangling the mess? You’re not alone, and it’s totally fixable. Schedule a consultation and let’s get your books back on track.

Because your business deserves clarity, and so do you.