A bad mix and a good mix

Quick Insight

Coordinate your business and personal financial strategies, but never mix the actual funds. Coordinating strategies helps you plan cash distributions from the company. Mixing funds can lead to bookkeeping headaches and legal liability.

Business owners are often told to “never mix business and personal finances.” However, you should coordinate your business and personal financial strategies.

Planning them together helps maximize both.  One critical planning area is how much cash from the business operations should be invested back into the business versus how much should be distributed to you or other ownership.   This critical strategic financial strategy should include insights from a business financial advisor and your personal financial planner.  

Another reason to coordinate financial strategies is to identify the best way to distribute funds to owners: salary, bonus, retirement account, deferred compensation, dividends, etc.  This is where working with your CPA on the tax planning for the business and personal taxes is very beneficial.  

Common advice I always give is to never let tax savings be the primary goal.  Decide first what you want to accomplish (i.e. cash to business or personal) and then decide what’s the best tax strategy.

While coordinating personal and business strategy is good, you should never mix your personal and business finances.  Running personal expenses through your business creates tracking headaches.  You may also be taking business deductions for personal expenses that aren’t eligible for deduction.
Mixing business and personal may allow creditors to “pierce the corporate veil” of your company.  This means that some legal protections of your company may be lost.  Creditors could then have claims on your personal assets.

I wish you a coordinated financial strategy with clear financial boundaries. I wish you well.

- Rob Stephens

Further Insight

CFO Perspective Resources

  • Video: How to Create a Cash Flow Projection - This video walks you step-by-step on how to create a projection starting from an easy and free template. A cash flow projection can help you identify “cash leaks” that are draining your profits, spot periods of low cash flow before they become a crisis, and know when you have the cash to capture opportunities.
  • Course: Managing Cash Flow - This course shows you how to assess current and future cash flows. You learn techniques to increase cash flow and reduce dips in cash flow. I list critical sources of cash for businesses, along with the pros and cons of major sources.

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