The Danger of Commingling Personal & Business Finances

Blending personal assets with business funds is a frequent oversight many entrepreneurs encounter. This issue often arises from a need for more awareness about the consequences of merging the two. Even if there weren’t legal consequences for commingling personal and business funds, it creates significant challenges for tracking and accounting for your business’s financial health. Establishing firm boundaries between the two is fundamental because it protects your personal assets and gives you an accurate financial picture of your business. 

Why Separating Personal & Business Assets Matters

Blurring the lines between personal and business finances obscures your business’s true financial performance. This lack of clarity is problematic not only for your own understanding but also for potential investors or lenders. Moreover, the ability to accurately claim business expenses on taxes becomes compromised, leading to possible legal issues and missed deductions. The risk extends to personal liability, where personal assets could become vulnerable to business debts. 

The consequences of such financial intertwining include difficulties in financial reporting, reduced credibility with financial institutions, potential penalties from tax authorities, and an overall increase in administrative workload. Establishing distinct financial boundaries is essential for protecting the individual’s and the business’s assets. With clear separation, business owners can avoid significant financial confusion and legal complications that could otherwise be avoided. Having separate finances gives you more clarity and supports strategic decision-making and financial planning. It maintains a professional image and trustworthiness in the eyes of stakeholders. Creating and adhering to these financial boundaries is not just about compliance; it’s about ensuring your business’s long-term sustainability and success.

Tips For Keeping Them Separated

Establish separate bank accounts and credit cards that your business will use solely. This simplifies tracking business expenditures and ensures personal purchases are kept entirely separate, thereby facilitating cleaner financial management. Utilizing accounting software, such as FreshBooks, is another effective strategy for small business owners. This software allows for an organized, straightforward method of tracking and categorizing expenses, making it easier to maintain a clear division between personal and business finances. For larger enterprises, enlisting the services of a professional accountant can provide invaluable assistance with the more complex aspects of financial management and tax preparation.

Additionally, storing your receipts and invoices digitally enhances efficiency and security. Modern solutions like receipt scanners or apps like WellyBox offer a more reliable and accessible means of storing and managing expense records, even allowing for easy integration with accounting software for seamless expense reporting. For items used both personally and for business, maintaining a detailed log of business use—including dates and times—is essential for tax purposes. They provide clear documentation to substantiate deductions. Regularly review your business accounts at pre-planned intervals. Ideally, conducting them multiple times a year is critical in identifying and rectifying any inadvertent mixing of personal and business funds. It prevents potential complications and ensures financial clarity and compliance.

Get Your Own CFO 
The first step toward financial health is to know the importance of separating personal money from your and your business’s finances. If you need help with mixed finances or want to ensure you’re on the right track, we’re here to help. Schedule your free business analysis today to begin the journey toward more transparent and secure business financial management.

1099 or W-2? The Answer Is Becoming More Complicated

The Department of Labor (DOL) is changing the way small companies can classify workers as either employees or contractors. Employers need to understand the new rules because they re-define employer-employee relationships and could reshape the gig economy and potentially have even broader implications.

An Overview 

Under the latest DOL directive, identifying and classifying workers as independent contractors is becoming more stringent. Before this law, businesses classified their workers based on straightforward criteria. (That’s not saying it was easy because the National Employment Law Project estimated that 10-30% of employers misclassified their workers in 2020.) Now, the DOL has reverted to a prior, more nuanced approach. This method examines the entire context of the working relationship and the worker’s skillset to determine whether the worker was defined as an employee or a contractor. Consequently, we expect more people to become employees instead of independent contractors. 

If you have contractors that have to be reclassified as employees, you are looking at significantly higher operating costs. Employee benefits and taxes that previously didn’t apply to contractors will now become a significant consideration in terms of overhead. 

Additionally, businesses must meticulously document worker relationships, requiring additional administrative efforts. The DOL hopes to safeguard workers, but doing so will burden small businesses in several ways.

The ABC Test 

The introduction of the federal government’s new rule does not override state laws, which maintain their criteria for worker classification. In certain states, the requirements are even more strict. For instance, California and Massachusetts employ the ABC test, where a business must validate three key aspects to classify a worker as a contractor: that the worker is autonomous from the company’s control, that the worker is performing tasks beyond the company’s primary business, and that the worker’s company provides the same services to others. 

This dual layer of federal and state regulations presents a new challenge for businesses, particularly smaller entities, without dedicated legal support. The risk of misclassification brings potential audits, fines, and lawsuits that could damage a company’s standing and financial position. These regulatory changes might adjust how businesses collaborate with freelancers and contractors, potentially diminishing independent work opportunities. For the workforce, while there may be an increase in job security and benefits, it could also restrict their flexibility and limit their opportunities with multiple employers. Both sides must will have to adapt to these legislative changes.

The Economic Reality Test 

Previously, under the Trump Administration, the DOL had provided some guidance regarding worker classification. This, however, is being replaced with this test. It offers six specific factors to evaluate when determining whether someone works as an employee or an independent contractor. It emphasizes that the decision shouldn’t hinge on a single aspect of their work arrangement. 

  1. Opportunity for profit or loss depending on managerial skill
  2. Investments by the worker and the potential employer
  3. Degree of permanence of the work relationship
  4. Nature and degree of control
  5. The extent to which the work performed is an integral part of the potential employer’s business 
  6. Skill and initiative

The DOL offers detailed explanations on each of these and provides examples that you can read here. It’s a layered process that demands employers to be meticulous in their analysis to adhere to labor laws accurately.


Adapting to these regulatory shifts may seem daunting for business leaders and managers. However, navigating these changes doesn’t have to be a solitary journey. Ensuring compliance with the law can prevent significant headaches and fines later. Reach out for a free business analysis today to smoothly transition through these changes, keeping your business on the right side of compliance and ahead in the competitive market.