Keep personal and business money separate

Keep practice money and personal money in separate accounts, because every mixed transaction is one someone has to stop and ask you about.

Why mixing costs you

When the grocery run and the lab supply order come out of the same card, your books can't tell them apart. Someone has to ask, usually by email, about a charge from four months ago that you don't remember.

Multiply that by every month and it adds up to hours of your time and mine. Worse, the answers are guesses, and guesses make your numbers less reliable. If personal spending lands in practice expenses, your P&L shows less profit than you made. If business costs get paid from a personal card and nobody records them, it shows more. Either way you're making decisions on numbers that aren't true.

It also makes tax time messier. Your CPA has to sort the same pile we did, or ask the same questions again. Which expenses count for tax purposes is their call, and they can only make it from clean records.

What separate looks like

Separate doesn't need to be fancy. Here's the setup I'd want for any practice:

• One business checking account where all membership deposits land.
• One business credit card used only for practice costs.
• No personal bills paid from either one, even once.
• Owner pay moved from business checking to your personal account as a single transfer, on a schedule.
• Any practice cost you put on a personal card gets reported to your bookkeeper with the receipt.

That fourth item matters most. When you need money for yourself, move it as owner pay. Don't run personal spending through the practice and sort it out later. How owner pay is recorded and taxed depends on how your practice is set up, and that's your CPA's call. Your bookkeeper's job is to make sure every transfer is recorded so your CPA has what they need.

How to untangle it if you're already mixed

Things are fine. This is common and it's fixable. Here's what I'd do.

First, draw a line on a date. Pick the first of next month and commit that everything from that day forward follows the setup above. Fixing the future is the easy part, so start there.

Second, open whatever account is missing. If you've been running the practice through a personal account, open a business checking account and move your membership deposits to it. If you have one card for everything, get a second card for the practice.

Third, go back through the mixed period and mark each transaction business or personal. Your bookkeeper can do most of this and send you a short list of the ones they can't tell. Personal items paid by the practice get recorded as owner draws or distributions, depending on how you're set up. Practice costs paid personally get recorded as money you put in, or paid back to you from the business account. Your CPA decides how those are treated for tax.

How far back to go depends on how messy it is and whether prior years have been filed. I covered that decision in fix prior years or start fresh.

What to check this week

Open last month's statement for your business checking account and your business card. Look for anything personal. Then open your personal card statement and look for anything the practice should have paid. If both are clean, you're in good shape. If not, pick your start date and set up the missing account before the month ends.

Common questions

Can I use one account if I'm a solo practice?
You can, but I wouldn't. A second account is easy to open and saves you from explaining every charge later.

I paid a practice bill with my personal card. What now?
Send the receipt to your bookkeeper so it's recorded as money you put into the practice. Your CPA decides how it's treated for tax.

How do I pay myself without mixing accounts?
Move a set amount from business checking to your personal account on a schedule, as one transfer. How that pay is taxed is your CPA's call.