Why it’s best to keep your QuickBooks file all business

[Editor’s note: We get asked a lot of questions about mixing personal and business finances in QuickBooks, and we always give the same one-word answer: don’t. So we asked QuickBooks guru Jonathan Bello to explain why.]

So I’ve been asked to give my opinion on why one should keep their personal finances and business finances separate. To put it simply, it’ll keep you sane.

I’ve had 3 consulting practices over the past 23 years. The first one, funny enough, was specializing in one of the first accounting packages for the Macintosh in the late 80s. In that practice, I didn’t separate personal and business expenses, but I did have two checking accounts (personal and business) and one type of credit card. (My first two practices were DBAs. I’m an LLC now.)

So I’ve been there. Yes, it was easy to enter the credit card charges and break it out by business and personal type expenses, but there were serious pitfalls.

• When I printed out my Profit & Loss Statement, it was 3 pages long! This was because I had two expenses each for a lot of items (heat, electricity, entertainment, and so on). This made figuring out my business’s bottom line difficult.
• Getting an accurate balance sheet was nearly impossible!I won’t bore you with the accounting details, but I tried to structure it so business expenses were at the top and personal ones were at the bottom. And to make it worse, I structured my living expenses separate from discretionary (okay….I’m a little OCD), but it helped me identify where my money was going instead of guessing. But it was way too much work to do all of this.

When I started my third consulting practice, I decided that I wanted to incorporate as an LLC to protect my personal assets. So that forced me to separate my personal and business expenses. That’s a good thing.

Here’s what I realized when I separated business finances from personal ones:

• When I look at the business, I see just the business finances  and I don’t have to reverse out my personal stuff.
• I could see how my bottom line becomes my personal income, which helps maintain do a personal budget, especially when money gets tight.
• When applying for things like a mortgage or a business line of credit, the information I gave to creditors was much cleaner.

Now, what about using the personal card for business? Easy. I send myself a bill or invoice for the business expense I charged, and then pay it and receive payment through a bank account I called Due to Me.

As another tip, I suggest that you take advantage of entering detail transactions from credit or debit cards on weekly basis versus waiting for the statements to come in. Hard to believe, but sometimes I can’t remember what a charge was for, especially PayPal charges.

You can see now the benefits of keeping business and personal expenses separate. Whether you set yourself up as an LLC, as I did, or use your own method, separating finances really does help keep you sane and makes life run a little bit smoother.

Lastly, as your business grows, your bookkeeping requirements grow with them. So while you might like doing it yourself, having a bookkeeper is not a bad thing, because in the end, it’s not about the input, it’s about the reports that you get out of QuickBooks to help you track what’s going on and help you make good business and personal financial decisions.