Law firms and other business owners can be focused on the action first and the organization second when setting up their business accounts. However, a business needs guard rails to keep funds associated with their business in their business account and take the necessary steps to move funds to and from personal accounts or other unrelated business accounts. When a purchase needs to be made for the company, there may not be a distinction that matters in the owner’s mind which leads to treating business accounts as a personal checkbook. However, that approach leads to more work later. Using one checking account to make personal and business purchases saves 2 minutes now and create hours of work later for multiple people including the business owner, the bookkeeper, and the tax preparer.
Solution, hire a bookkeeper to keep company finances organized:
If the firm is running short on funds, make an owner contribution to the business operating account. If the owner’s personal expenses are being paid for out of the business operating account, consider making a weekly distribution to pay for personal items out of personal accounts. This will save all parties involved, time and money. If the owner has multiple entities and EIN #’s never pay for one entity’s expenses in an unrelated company’s account. This may lead to legal liability down the road. The proper solution is to set up a loan from one company to the other and charge interest.
Saving time now is actually borrowing time from the future. Also, serially making business purchases out of a personal account is much more likely to have missed deductions on the business’s tax return, increasing the tax liability of the business.
Get your firm’s bookkeeping organized with firmTRAK Solutions’ outsourced accounting services for law firms.