Navigating Client Co-Mingling Issues: Effective Expense Management in QuickBooks

Recently, I found myself stepping into a new role, helping a friend transition from manual Bookkeeping to utilizing QuickBooks for her gardening and landscaping business. After her longtime bookkeeper and assistant retired, my friend, Liz, needed support to streamline her financial records. Little did I know how complicated this task would become upon diving into the existing financial practices.

Upon reviewing Liz’s financial documentation, which had been meticulously maintained in a handwritten ledger for over a decade, I discovered an alarming trend: significant personal expenses were being charged to the business account. These expenditures included not just usual business-related costs like pest control and fertilizer, but also personal items such as mortgage payments, utility bills, IRA contributions, and even gym memberships.

Here’s a snapshot of a typical month’s transactions I encountered:

| 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 |

In QuickBooks, it quickly became evident that all these payments were drawn from the same business account. While the costs associated with pest control, fertilizing, and nursery supplies appear to be reasonable business expenses, the inclusion of personal financial obligations, such as a mortgage and personal insurance, raises significant concerns regarding co-mingling funds.

A key concern emerged regarding the SIMPLE IRA contribution; the retiring assistant clarified that this was a personal contribution from Liz rather than an employer-sponsored item, further complicating the financial landscape.

So, what’s the best strategy for managing these expenditures in QuickBooks? Should I adopt the approach of recording all personal expenses as “Owner Draws”? Or is there a more efficient method to handle this co-mingling issue without overwhelming the client?

I’ve attempted to engage both Liz and her retired assistant on these topics, only to be met with confusion or annoyance. They have been accustomed to their handwritten method, handing it off to an accountant without questioning the processes for years.

It’s clear that more than just the need for a technology upgrade is at play; there’s a fundamental misunderstanding about the separation of personal and business finances which needs