Navigating Co-Mingling Issues in QuickBooks: A Guide for Small Business Owners

Recently, I found myself stepping into the world of QuickBooks when a friend asked for assistance after their bookkeeper retired. The challenge? Their records had been maintained manually for over a decade, and transitioning to a robust Accounting Software seemed daunting.

Upon diving into the details, I discovered a concerning practice that’s not uncommon among small business owners—co-mingling personal and business expenses. This client, whom I’ll refer to as Liz, had been using her business account to cover significant personal costs including her mortgage, utilities, and even gym memberships.

Consider the following monthly expenses pulled from their records:

| Vendor | Amount |
|——————————|———|
| Bob’s Pest Control | $1,000 |
| Jill’s Fertilizing | $600 |
| Insurance Company (Home & Auto) | $3,000|
| Ed’s Nursery | $2,000 |
| Chase Bank (Mortgage) | $3,500 |
| Comcast | $200 |
| AT&T | $200 |
| SIMPLE IRA | $4,000 |

While the expenses for pest control, fertilizer, and nursery supplies appear legitimate for a landscaping business, the inclusion of personal payments such as the mortgage and utility bills raises significant red flags regarding proper Accounting practices.

The situation grew more complex when I learned that the SIMPLE IRA contribution was actually Liz’s personal investment, not a business expense despite being mixed in with her company’s finances.

So, how should I handle these mixed accounts in QuickBooks?

It seems clear that simply categorizing the personal expenses as an “Owner Draw” could be a quick fix, but it doesn’t address the underlying issue of maintaining a clear boundary between personal and business finances. Yet, when I approached Liz and her previous assistant about these discrepancies, they appeared perplexed by my queries, likely due to their long-standing practice of recording everything in a handwritten ledger before turning it over to their accountant at year’s end.

What Steps Should You Take?

1. Open a Dialogue: Discuss the importance of separating personal and business expenses with your client to enhance clarity and accuracy in their financial reporting.

2. Educate on Best Practices: Provide guidance on maintaining a dedicated business account and using personal accounts solely for personal expenses. This not only simplifies Accounting but can also have