Your business accounting software should be used exclusively for business transactions. That’s its core purpose—providing a clear picture of how your business is performing. Personal accounts should not be a factor.
Yet, I often start working with new clients who’ve linked personal accounts to their business software. If this sounds familiar, it’s time to reconsider.
Mixing personal and business finances in your accounting system can lead to a range of issues. Here are a few key reasons why it’s best to keep them separate:
- Connecting personal bank accounts, credit cards, or loans to your business accounting software can lead to serious confusion. the system treats those personal transactions as business ones—even though they’re not. For example, if your personal account receives a paycheck or a tax refund, your software may mistakenly count it as business income. That’s not accurate, and it can lead to serious reporting errors.
- The same goes for personal expenses. If you pay for groceries, medical bills, streaming subscriptions, or dining out from a personal account that’s linked to your business software, those costs may be misclassified as business expenses.
- Some people try to fix this by labeling personal deposits as “Owner Contributions” or personal expenses as “Owner Distributions.” But that’s not correct either. If the money never came from or went through the business, it shouldn’t be recorded that way.
- If you’re doing your own bookkeeping—or working with someone who isn’t trained in accounting—these mistakes can easily happen. And they can cause big problems down the line.
- If you ever get audited, having personal accounts tied to your business software will raise red flags. Auditors may think you’re trying to claim personal expenses as business deductions, which can lead to deeper investigations and further headaches.
What you should do:
- Only use business bank, business credit card, and business loan accounts for ALL of your business transactions. This shows that your business is being operated separately from your personal life.
- If you haven’t already opened a business bank account, it’s time to make that a priority. Set one up in your company’s name to keep your finances clean and organized.
- There are plenty of options available. A good starting point is the bank where you already hold personal accounts – they may offer business checking services that fit your needs. If you’re comfortable with online banking, you could consider online banks such as Bluevine, Relay, Found, or Lili. Some of these also offer helpful features like virtual cards for employees and built-in spending limits to help manage expenses.
- On the credit card side, also check out any banks you currently work with to see if they offer a business credit card. If you want just a basic starter business credit card, try Capital One. Their Spark Classic card currently still provides 1% cash bank on every purchase, as of the time of this post.
- Start using your business accounts strictly for your business transactions. Any recurring business transactions that you were paying through a personal card should now be moved to your new business bank or business credit card. Categorizations will become much easier to handle without having to question everything. Don’t start using your business bank or business credit card account to pay for personal transactions because you’re defeating the purpose of all of this.
- If you believe you need to pay for a personal transaction using business funds then transfer those funds to your personal account first, then pay for it using your personal account. It’s so important to keep your business transactions separate from your personal transactions!
Conclusion
As you can now see, connecting personal accounts to your business accounting software is a bad idea. Do yourself, your bookkeeper, and your CPA a huge favor and set up bank, credit card, and loan accounts in your business name to provide legitimacy to your business, provide order to your business accounting, and make tax-time much less stressful.
If you find yourself in the unenviable position of having connected to personal accounts to your business accounting software, you should consider having your business books cleaned up. Here’s one of our posts from a while ago to explain why a bookkeeping cleanup is extremely beneficial.