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

When stepping into the world of Bookkeeping for a small business, it’s common to encounter a few challenges—especially if the previous record-keeping was done manually. Recently, I took on a project for a gardening and landscaping business that had relied on handwritten ledgers for over a decade. With the previous bookkeeper retiring, the owner sought assistance in transitioning to QuickBooks. However, what I discovered painted a concerning picture of financial practices.

Upon reviewing the records, it became apparent that personal and business expenses were not separated effectively. Expenses such as mortgage payments, utilities, gym memberships, and even IRA contributions were all being charged to the business account, alongside legitimate business transactions like pest control services, fertilizer purchases, and nursery supplies.

To illustrate, one monthly statement included:

• 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 (owner’s personal contribution): $4,000

While the business expenses, such as pest control and fertilizing, are clear, the inclusion of personal expenditures raises significant co-mingling concerns. Such practices not only blur the lines for tax purposes but can also lead to financial mismanagement.

During my efforts to clarify these transactions, I attempted to engage the owner and the retiring administrator. However, they appeared confused and somewhat annoyed with my inquiries, accustomed as they were to their previous informal process. Their reliance on the old hand-written system seems to have created a false sense of security regarding their financial practices.

So, where do we go from here?

First, it’s critical for business owners to understand that mixing personal and business finances can complicate Accounting and tax filings significantly. Although my instincts urge me to suggest the owner separate these expenses, I recognize the potential pushback given their long-standing methods.

As I dive deeper into QuickBooks, I find myself grappling with how best to categorize these personal expenses. One possibility is to record them as “Owner Draws” to keep the business Accounting clean. However, clarification and guidance on proper financial practices would ultimately be beneficial for Liz and her business moving forward.

The question remains: Is this a simple oversight, or does it signify