Comments on: How to Organize Your Small Business Finances

By: Katie

Katie — Sat, 07 May 2011 01:47:21 +0000

Myself and other members of my financial accounting class found these tips very insightful when trying to understand how accounting works. Although not meant for academic purposes, this article helps personalize business-directed financial activities in way that is identifiable. Thanks!

By: parx

parx — Mon, 04 Apr 2011 10:08:37 +0000

i think reducing unnecessary expenses towards zero is a key

By: Ed

Ed — Thu, 09 Dec 2010 12:32:45 +0000

Thanks for the great tips Ryan. I’ve had a mess to sort out the past several years at tax time for not keeping my business and personal spending separated. I think I need to start by getting a business checking account and keep the money separated.

By: Evita Phanor

Evita Phanor — Thu, 04 Nov 2010 12:54:18 +0000

I recently inherited a small business and since I have no prior management skills I don’t know where to begin managing the business effectively. Your informative article has given me confidence and the direction I need to manage it easily. I have one more question.. would you have any advice on how to run a property management business effectively as well? THANKS

By: Ryan

Ryan — Wed, 06 Oct 2010 00:37:40 +0000

Barney, the most important thing to remember is to maintain clear records of which expenses are business, and which are personal. I know a few small business owners who keep track of everything (personal and business) in Quicken and they don’t have any problems with it. Quicken and QuickBooks are both powerful tools. I personally use QuickBooks for my small business because I prefer to have everything completely separate – it makes things much easier for me.

But everyone has a different situation. If you find it easier to maintain one set of books but you can clearly segregate personal and business income/expenses, then it probably isn’t an issue for your situation. But if you have a business that you may sell at some point, then this probably isn’t a good idea because the buyer will want to see all tax records (would you really want a potential buyer going through your personal tax records?).

The key take away is this: Be sure you can clearly separate business and personal income/expenses for tax purposes, and find a method that works for you. Best of luck!

By: Barney

Barney — Tue, 05 Oct 2010 23:02:35 +0000

Very informative article!

If you could just clarify a couple things? I’ve done bookkeeping for several small businesses, but they were all incorporated. I completely understand how and why company and personal expenses must be kept separate – and have had to deal with people who did not. But my understanding is that a sole proprietor and his company are one. So as long as I’m diligent about allocating all income and expenses to the proper accounts (separating business from personal) it seems like overkill to have separate companies within QuickBooks Pro or, even more expensive and time-consuming, record all business transactions in QuickBooks and have other software, like Quicken, for my personal finances.

I’d also rather not apply for, have to keep track of and possibly pay an annual fee on yet another credit card solely for my business use – especially when I often buy both personal and business items in one shopping trip. Likewise, since all my income goes to me, and all my expenses come from me, it seems an unnecessary complication and expense to have a separate bank account for my business.

For a small sole proprietor, isn’t QuickBooks Pro robust enough to keep business and personal finances adequately separate if I use its features correctly?

Lastly, if my understanding has any validity in the first place, would that all change if I were to someday form a LLC?

Thanks for a great article.

By: Kevin

Kevin — Fri, 09 Jul 2010 20:47:06 +0000

GREAT article Ryan!

As a CPA, we always recommend having a separate business account. It makes for an easier defense in defending the business purpose of your organization (business vs. hobby) to the IRS in case of an audit.

By: Ryan

Ryan — Mon, 08 Mar 2010 14:08:12 +0000

Sam, I created an LLC that encompasses all of my websites (I have more than just Cash Money Life and The Military Wallet). For tax purposes I track income and expenses for each site under the LLC and one EIN, but I also track each site individually for personal reasons, that way I know what each site is bringing in. That info is good so I can compare trends or if I were to ever decide to sell one or more sites. The answer to the second part of your question really depends on the details for your specific situation. The cost for forming a legal business entity varies depending on many factors. I formed an LLC, which in OH is a one-time $125 filing fee. Some states are closer to $1,000 and may have an annual fee on top of that. I also formed my company myself because the paperwork was a simple one or two page form (it's been a couple years, so I don't remember the details). However, some business formations are more detailed and may require legal assistance.