Navigating Client Co-Mingling Issues: A QuickBooks Dilemma

Managing finances for a small business can be challenging, especially when long-standing practices aren’t updated to reflect modern Accounting standards. A recent experience with a client, Liz—who runs a landscaping business—highlights the complexities that arise when personal and business expenses are intertwined in a single account.

A Transition from Handwritten Records to QuickBooks

Liz recently lost her long-time assistant, who had been manually recording finances for over a decade. When I stepped into the role to assist with transitioning to QuickBooks, I quickly discovered that the challenges ran deeper than expected. My initial assessment revealed a troubling pattern: significant personal expenses were being processed through the business account.

Identifying the Co-Mingling of Funds

As I reviewed the financial records, it became evident that everyday personal expenses like mortgage payments, utility bills, and gym memberships were all categorized alongside legitimate business costs. The monthly outflows included items like:

• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Home & Auto Insurance: $3,000
• Ed’s Nursery: $2,000
• Mortgage Payment to Chase Bank: $3,500
• Comcast (Cable): $200
• AT&T (Phone): $200
• SIMPLE IRA Contribution: $4,000

While the expenses related to pest control, fertilizers, and nursery supplies qualify as business-related, the inclusion of personal costs raised a significant red flag regarding co-mingling of funds.

Seeking Clarity on Expense Classification

In my attempt to gain clarity, I inquired with the previous administrator about whether the SIMPLE IRA contribution was a business expense. To my surprise, I found out it was Liz’s personal IRA contribution coming directly from the business account. This level of co-mingling could complicate tax filings and distort the business’s financial health.

Addressing the Complications in QuickBooks

Faced with this situation, I found myself questioning the best approach to rectify the financial records. Should I classify personal expenses as an “Owner Draw” in QuickBooks? This would help in separating business and personal transactions, allowing for clearer reporting in the future.

However, when I brought these concerns to Liz and her former assistant, their reactions were somewhat dismissive. They had grown accustomed to their traditional ledger system, relying on their accountant to make sense of the financial muddle at tax time.