Business Finances: 5 powerful Reasons to separate from personal

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business finances

When you’re first starting your business there are far more exciting things to focus on that separating out your bank accounts. Getting clients, thinking you need a website with beautiful branding (you don’t but that’s a different topic), learning how to market, sell and all the rest. It is like drinking from a water hose when you first get started.

One thing you are likely to put off is really dialing in your business finances. Why?

Top reasons entrepreneurs delay setting up their business finances

  1. You don’t think you are making enough money for it to matter
  2. You think that it will be harder to manage if it’s separated
  3. You don’t like managing your personal finances so why add more?
  4. You don’t know where to start and it seems overwhelming

The truth about separating your business finances

business finances

If you are making money in your business, it should be separate from your personal finances. It may seem like a lot to handle but I will show you that it doesn’t have to be.

If you have read the book Profit First by Michael Michalowicz, as many entrepreneurs have, then you may think that you need to have all these bank accounts set up to manage your finances well as an entrepreneur. While I think that his concept is wonderful, online banking has optimized the way you can do this now in 2021 and you don’t need multiple bank accounts to make this system work anymore.

Reason 1 to stop mixing personal and business finances: Legal Liability

If you have not started researching legal business entity structures you may run across the term soon. Conceptually many small businesses run as sole proprietors even if they have a legal business entity, like an LLC (Limited Liability Corporation) set up.

So, what’s the difference? In the simplest terms, an LLC protects your personal assets (money, property, etc.) from being able to be used against you if someone sues your business. If you have an unhappy customer that sues your company this would only allow them to potentially take any money from your business not you as a person.

While setting up a business entity is outside of the scope of this post I always recommend one for protective purposes and you should always have it set up by an attorney. Please do not do this off the internet with some free forms. If it’s not set up correctly it’s not valid and you’ve wasted the whole point.

So what does this have to do with finances? In order for your legal protection to work you have to maintain what is referred to as the “veil”. It means that if for any reason you mix your personal and business expenses your legal protection is voided – aka no good. It’s referred to as “piercing the veil” and it is crucial if you want to protect your personal assets from being eaten up by a potential lawsuit.

So, using 1 bank account even after you’ve started a LLC? Um, you’ll need to take a mulligan on that one. You will need a NEW LLC and new bank accounts to start over with new protection and it won’t be retroactive…. Sorry.

Reason 2 to stop mixing personal and business finances: Clarity

If you’re thinking that one account will make your finances easier to keep track of just think of the last time you went to check your account and realized there was less in there than you thought because of a bill you forgot about paying…

Having separate business and personal finances keeps everything clear from several perspectives.

Your business account is for income, savings for your business, business bills, continuing education for yourself, taxes and to pay yourself out of (yes you PAY yourself out of your business account).

Your personal account is for your personal bills, personal savings, personal investments, etc. and to receive your owner’s income from your business.

Being able to clearly see how much you have and where makes budgeting that money effectively a whole lot simpler!

Reason 3 to stop mixing personal and business finances: Less Stress

Bet you didn’t see this one coming! More accounts meaning less stress? Let me walk you through this.

Reduces stress in the following ways:

  1. You can easily see how much money is coming through your business both in and out
  2. You can more easily assess how much you need in your personal life vs how much is for your business (this helps with personal budgeting, pricing, taxes, so much!)
  3. You aren’t constantly scrambling for more money because you are spending things that should be saved…because when it’s all in one big pot of money it’s ridiculously hard to keep track of.
  4. You can outsource your business finances and get it off your plate entirely

When you have a business you are automatically managing more and what’s one of the first things you want to outsource? If you are like most it’s bookkeeping. If your finances are merged no bookkeeper worth their salt is going to work with you. While you may not be able to completely outsource your personal finances (nor should you – but you CAN learn how to manage them well and with minimal effort by checking out the Bulletproof for Life Program) you can completely outsource your business finances.

Reason 4 to stop mixing personal and business finances: Better tax savings

Carefully tracking, matching and reporting your expenses for your business ensures that you are saving as much as possible on taxes. Now, I am not of the camp that taxes are inherently evil – they are part of living in a society that has government and as such I believe that every individual and company should pay their fair share. I also believe that everyone has the right to avail themselves of every legal opportunity to ensure the fairness of their tax payment.

Accurate recordkeeping, including separate bank accounts are an important component of that. If you mingle your finances and you are audited, as many a small business are, you will very likely have some of your deductions questioned and potentially reversed. Having legitimate business expenses denied as tax savings is not fun and not fair so you are really shooting your income in the foot by keeping things mingled.

Additionally, it is much harder to figure out what you even should be paying in taxes (most US-based businesses) pay quarterly when all your money is mixed. Not to mention the very real fear of accidentally spending money that should have been saved for taxes.

Reason 5 to stop mixing personal and business finances: Work less/make more

You remember how having things separated gives you a better sense of what you have coming in and when? Plus, what you need in your personal life? This concept is often overlooked for its simplicity when it is the most impactful component of financial success for both you and your business.

Knowing exactly what you have coming in and what you need coming in means that:

  • You can easily track whether you are on track for your income goals or not
  • Whether you can take rest, vacation and such without impacting your finances
  • Whether you need to launch or constantly create or not (a trap many entrepreneurs fall into)
  • Whether you can invest in a new service, program, coach, etc.
  • When you have the funds and stability to outsource (say…like your bookkeeping?)
  • When you need more clients/students when you don’t
  • Whether you can on-track to meet your personal goals with your current income level or not

When you don’t have clarity here you tend to work endlessly in a constant state of panic that you don’t have enough. You tend to invest when you should save. You tend to feel pressure to always be working.

You can’t rest if you don’t know what it looks like to hit your goals. If you don’t have a clear map of what success looks like, then you will constantly be hustling (and not in the good way).

Where to start when separating your personal and business finances:

business finances

First, start by making sure that your business entity is what you need it to be. Bare minimum, if you are making money in your business (or will be soon) see an attorney and set up an LLC, get an EIN (employer Identification Number) so you can use it for your business bank account instead of your social security number and then open a business bank account. Because let’s face it, if you aren’t making money, your business finances do not need attention.

I recommend Novo – they are fantastic, free, have a great rewards program with things like reimbursable Stripe fees. You can hear more about them on the Money Mythbuster Podcast episode where I discuss it in detail here. (Yes I am an affiliate with them so I do receive a small commission but it costs you nothing and I use them myself so I KNOW they are rad).

Then once you’ve separated your business finances out do not pay for anything for your business out of your personal account. EVER. Make sure those bank accounts are connected for transfers so that you can move money easily to pay for things as you finish getting set up.

You can learn more about setting up your business budget here

Read more about business budget categories here

Read about how to get started with a bookkeeper here

If you want help getting all of this set up and honestly just don’t want to have to handle it on an ongoing basis, please inquire about bookkeeping services by submitting an inquiry below

I’m Sarah


On a mission to change the world of finance from stuffy suits and guilt-trips to a place of understanding supported by solid strategy; I have personally journeyed from homeless teen mom to ass-kicking CEO and now my work centers around empowering women like you to do the same.

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