In the early days of your business maybe you were using your personal bank account and a personal credit card for business transactions.  By now you’ve should have opened a separate bank account and dedicated one credit card for business use. If you’re working as a sole proprietor it means both the bank account and credit card are likely personal not business accounts.  That’s fine as it is the segregation that’s important.

If you still co-mingle personal and professional transactions, here are a few reasons not to:

• The IRS. Improper segregation and record keeping can cause the IRS to disallow an expense as pertaining to business. After all they would like you to report higher income and pay higher taxes.
• Evaluating Business Results. It is hard to evaluate how your business is doing if business and personal expenses have been mixed together.  You need to be able to answer “what is the cost of doing business”.  At some point financial statements will be needed and they need to reflect only business transactions.
• Infrastructure for Growth. I am assuming you would like to grow your business.  The early segregation is the beginning of building an infrastructure that eventually results in the policies and procedures necessary to support growth.
• Protecting Personal & Business Assets. Failure to segregate personal and business transactions means personal assets could serve as collateral for business debt and/or business assets could serve as collateral for personal debt. This increases your risks if problems develop in either area.
• Repaying Personal Loans. If you have loaned your business funds to operate proper documentation and segregation will help insure you get repaid and the repayment is treated correctly for tax purposes.  Depending on the business form you choose, your ability to deduct losses may also be impacted.
• Future Borrowing. Particularly today, any personal problems with credit and debt impacts your ability to get credit for the business.  This isn’t a segregation issue so much as it is something to be very aware of.

If you have recently started a business or are thinking about it, keeping the personal and business separate is critical for future success.  This is not the place to try and save money by using one bank account and credit card for both.