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The core philosophy of The Bottom Line Bookkeeping Service has always been dedication to your success beginning with proper record keeping. The success of our clients across many different industries, from small business start-ups to franchised businesses, is proof that our methods work, and work well.
Sunday, April 17, 2011
Sunday, April 10, 2011
Commingling funds
One of the most common mistakes small business owners make is mixing their company and personal finances. Every company needs to have it's own bank account, all sales need to be deposited into the company account. When the small business owner is a Sole proprietor or LLC you will pay yourself a "draw" check. Take that check and cash it or deposit it into your own account, it's yours. But the money in the business account must only be spent on business expenses. If your company is a corporation S-corp or C-corp then the business owner is an employee of the company and gets paid as such with withholding taxes. These examples are very simplified and you do need to consult with your tax accountant as to the proper method for you to pay yourself.
http://en.wikipedia.org/wiki/Commingling
If you don't pay yourself, but instead use the business account to pay for personal expenses, then you are commingling funds. This is very time consuming from a bookkeeping view point to record properly. Not to mention if the IRS ever decided to audit you, they may decide to disallow legitimate business expenses because you have commingled funds.
I will guarantee you that it takes bookkeepers longer, costing you more to record all of these transactions than if you had keep your personal and business finances totally separate.
Another form of commingling we've seen is when one person owns 2 or more companies, and commingles company funds. Company "A" pays the loans for company "B" etc. Again, this takes much longer to record properly and it's just bad business. Imagine if you will McDonald's paying Burger King's bills, sounds ridiculous right?
Businesses are to be treated as the separate entities that they are. Even if you're a Sole Proprietor or LLC the business does not exist without you, but you must treat the business as a fully separate entity when it comes to managing the finances. Once you have then your bookkeeping will be much "cleaner" and straight forward. Financial statements will be easier to read and there will less stress in your life trying to figure out where you stand financially.
One of the most difficult challenges people face is living within their means, and learning to pay themselves first. I recommend all business owners read "Rich Dad Poor Dad" by Robert Kiyosaki.
http://en.wikipedia.org/wiki/Commingling
If you don't pay yourself, but instead use the business account to pay for personal expenses, then you are commingling funds. This is very time consuming from a bookkeeping view point to record properly. Not to mention if the IRS ever decided to audit you, they may decide to disallow legitimate business expenses because you have commingled funds.
I will guarantee you that it takes bookkeepers longer, costing you more to record all of these transactions than if you had keep your personal and business finances totally separate.
Another form of commingling we've seen is when one person owns 2 or more companies, and commingles company funds. Company "A" pays the loans for company "B" etc. Again, this takes much longer to record properly and it's just bad business. Imagine if you will McDonald's paying Burger King's bills, sounds ridiculous right?
Businesses are to be treated as the separate entities that they are. Even if you're a Sole Proprietor or LLC the business does not exist without you, but you must treat the business as a fully separate entity when it comes to managing the finances. Once you have then your bookkeeping will be much "cleaner" and straight forward. Financial statements will be easier to read and there will less stress in your life trying to figure out where you stand financially.
One of the most difficult challenges people face is living within their means, and learning to pay themselves first. I recommend all business owners read "Rich Dad Poor Dad" by Robert Kiyosaki.
Saturday, April 2, 2011
Electronic Banking & Embezzlement
I've long been an advocate against online banking when it involves your computer accounting software connecting to the bank for transaction download. Not that this connection isn't secure because it is, but because unless you have the proper security on your computer and network you are opening yourself up to unwanted intrusions whenever your computer is connected to the Internet.
Today's banking is protecting your financial data very well and now rather than connecting directly to the bank you have the capability to download a file with your transactions in the format for your accounting software and import the data. This is a two step process and gives you much better protection.
However, there are still business owners who are more than happy to tell me their online banking log-in and password so that I can do this for them. If that last statement didn't make the small hairs on the back of your neck just stand up, then you too may be one of the trusting souls who allow themselves to be embezzled from. When you give anyone your online banking log-in and password that's the equivalent to handing them a pile of signed blank checks!
Most banks today offer a view only online banking access for bookkeepers. I insist upon it! If your bank does not, ask them to look into it for you. If anyone other than yourself has the login and password to your banking, change it first thing Monday morning! If your bank does not have the view only account for your bookkeeper, take a moment to learn how to download and save the transaction file for your bookkeeper to import.
Today's banking is protecting your financial data very well and now rather than connecting directly to the bank you have the capability to download a file with your transactions in the format for your accounting software and import the data. This is a two step process and gives you much better protection.
However, there are still business owners who are more than happy to tell me their online banking log-in and password so that I can do this for them. If that last statement didn't make the small hairs on the back of your neck just stand up, then you too may be one of the trusting souls who allow themselves to be embezzled from. When you give anyone your online banking log-in and password that's the equivalent to handing them a pile of signed blank checks!
Most banks today offer a view only online banking access for bookkeepers. I insist upon it! If your bank does not, ask them to look into it for you. If anyone other than yourself has the login and password to your banking, change it first thing Monday morning! If your bank does not have the view only account for your bookkeeper, take a moment to learn how to download and save the transaction file for your bookkeeper to import.
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