Why Separation Matters
Mixing personal and business money is one of the most common mistakes founders make. It feels easier at first. It creates massive problems later.
The Risks of Commingling
- Piercing the corporate veil: If you mix funds, courts can ignore your LLC and hold you personally liable
- Tax complications: Trying to figure out what was business vs. personal at tax time is a nightmare
- Audit red flags: The IRS looks for commingled funds as a sign of problems
- Unclear profitability: You can't know if your business is actually making money
The Basic Setup
1. Business Bank Account
Open a dedicated business checking account. Requirements:
- EIN (get one free from IRS.gov)
- LLC formation documents (if applicable)
- Personal ID
Many banks offer free business checking for small businesses.
2. Business Credit Card
Get a credit card in your business name. Use it exclusively for business expenses. Benefits:
- Clean expense tracking
- Builds business credit
- Easy categorization at tax time
3. Accounting System
Even a simple spreadsheet beats nothing. Track:
- All income (date, source, amount)
- All expenses (date, category, amount)
- Transfers between business and personal
How to Pay Yourself
Don't just grab money from the business account when you need it. Set up a system:
- Regular transfers: Weekly or monthly 'paycheck' to personal account
- Documented: Note it as 'owner's draw' or 'distribution'
- Consistent: Same amount, same frequency when possible
This creates a clean paper trail and helps with personal budgeting.
Handling Mixed Expenses
Some expenses are genuinely mixed (home office, car, phone). Handle these by:
- Calculating the business percentage
- Paying from personal, reimbursing business portion
- OR paying from business, recording personal portion as owner's draw
Document the calculation method and stick to it.
Monthly Habits
- Review all transactions — flag any that need categorization
- Reconcile bank statements
- Transfer profit to savings (for taxes and reserves)
- Update your income/expense tracking
15 minutes weekly prevents hours of catch-up later.