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

As a small business owner, managing your finances effectively is crucial for success. Recently, I encountered a challenging situation that highlighted the importance of properly separating personal and business expenses, especially when using Accounting Software like QuickBooks. Here’s a breakdown of my experience and some insights for fellow entrepreneurs facing similar co-mingling issues.

The Situation

A friend of mine, the owner of a gardening and landscaping business, sought help after her long-time assistant/bookkeeper retired. They’ve managed their books manually for over a decade, but now they needed to transition to QuickBooks. When I took on the role, I quickly realized the complexity of their financial situation.

Upon reviewing the records, I discovered that substantial personal expenses were being charged to the business account. Examples included mortgage payments, utility bills, retirement contributions, gym memberships, and even cable services. These expenses were being treated as standard business payments, leading to potential co-mingling issues that can complicate Accounting and tax preparation.

Understanding the Breakdown

In their monthly financial summary, legitimate business expenses were clearly mixed with personal costs:

• Business Expenses:
• Bob’s Pest Control: $1,000
• Jill’s Fertilizing: $600
• Ed’s Nursery: $2,000

• Insurance (Home & Auto): $3,000

• Personal Expenses:

• Chase Bank (Mortgage): $3,500
• Comcast: $200
• AT&T: $200
• SIMPLE IRA (owner’s personal contribution): $4,000

While the gardening-related expenses were clearly valid business costs, many of the other charges posed a significant issue. When I inquired about these items, the previous assistant indicated that the SIMPLE IRA contribution was not a business expense, but rather Liz’s personal investment made through the business account.

Addressing the Problem

This co-mingling not only complicates record-keeping but can also pose risks during tax time. After my inquiries were met with confusion and annoyance—apparently they had always kept everything lumped together—I realized I needed to tackle this delicately.

But what should I do?

1. Separate Personal and Business Expenses: First and foremost, I recognized the necessity for Liz to distinguish her personal expenses from business transactions. This means promptly shifting her payment methods and ensuring that personal bills are settled