Starting a business is almost always a chaotic experience.  There is never enough money or time to accomplish the things you set out to do to launch exactly as planned.  Most small businesses don’t have the luxury of taking a lump sum of money (or an angel investment check) and walking to the bank to set-up their business bank account as their first order of business.  Money is coming in and going out and you are never really sure where it all is.  It can be difficult to keep track of all the little business expenses you’ve laid out personally to help get your business off the ground. But, this can be where the trouble starts.

Protecting your ass…ets!

Once you’ve started lining up your location, logo and business the next natural step is to CYA and get an LLC or Corporation filed with your state.  This is the first line of defense protecting your personal assets from future possible lawsuits against your business.  But, there are some guidelines that go along with this layer of protection for your personal and business finances.

The IRS treats an LLC/Corporation similar to a copyright – if you don’t make a fuss every single time someone infringes on your copyright, you can loose the ability to make a future fuss when there is a seriously large (and costly) infringement.  It’s kind of a use it or loose it protection.  Your LLC is the same way…

If you decide to get an LLC, then continually blend, mix or confuse your personal finances and expenses with your business expenses, you may loose your personal asset protection that the LLC provides you.  The IRS will consider your business and your personal finances one-in-the-same, allowing your accuser access to your personal assets in court.

Uh, oh! 

Often, business start off on a shoe-string budget, so the costs of having a separate bank account are a bit high for the initial start-up period.  If you are starting out, check out your local independent banks – they often have accounts that are free for businesses and have a minimal opening balance requirement.

If you can’t find a free business bank account, it is important to separate your business and personal finances as soon as possible.  To help provide protection from that necessary start-up co-mingling, make sure your business expenses are classified properly and have receipts and other documentation.  If you accidentally used your business funds to pay for a personal expense (or thought you could count Netflix as a “business entertainment” expense), make sure your accounting professional knows and can re-classify them as an equity draw. 

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