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

Recently, I had an opportunity to assist a friend who owns a gardening and landscaping business. Upon the retirement of their assistant/bookkeeper, they found themselves in need of an understanding hand to transition into QuickBooks for managing their financial records. After some initial discussions, I decided to step in, excited to learn about QuickBooks but soon realized it was more complex than I anticipated.

As I sifted through the records, I discovered a significant issue: the owner, Liz, was using the business bank account for a myriad of personal expenses. To give you a clearer picture, Liz’s monthly expenditures looked something like this:

• 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 business-related expenses like pest control, fertilizing, and nursery supplies are legitimate, the inclusion of personal expenses such as mortgage payments, utility bills, and even a gym membership raised red flags. My examination revealed that all these transactions were being recorded from the same business account without clear distinctions, leading to what is known as a co-mingling issue.

In discussing the SIMPLE IRA contribution, I learned that this payment was Liz’s personal contribution, not an employer-sponsored contribution, thereby complicating the matter further.

What Should I Do Next?

This situation left me pondering the best course of action. How should I, as a new QuickBooks user, handle the co-mingling of personal and business expenses? Here are a few strategies I considered:

1. Separation of Expenses: Clearly, the most straightforward solution would be for Liz to start separating her personal expenses from her business immediately. This could minimize complexities in tracking finances and ensure a clearer financial picture when it comes time for tax season.

2. Owner Draw: For the expenses that are undeniably personal but paid from the business account, one option is to label these as “Owner Draw” in QuickBooks. This classification would help in keeping a clear record of personal vs. business expenses, although it doesn’t eliminate the