When you have an unexpected business expense come up, such as failing HVAC equipment or an uncharacteristically high purchase order, it may be tempting to dip into your personal bank account to stretch the company budget. Avoid the temptation: funding business expenses this way may be easy in the short term, but it does nothing but complicate both your personal and business finances in the long-term. And messy finances at tax time can get you into trouble by triggering an audit.
Here’s why you shouldn’t use personal funds for your business expenses:
Don’t Convolute Record-Keeping
When you dip into your own bank account and use it to pay for business expenses, you end up having to do manual transactions in your bookkeeping software because it won’t automatically recognize these transactions as part of the business. If you don’t have the time to manually enter transactions into your records (and if you don’t have a dedicated finance department, you probably have enough work on your plate), then you’ll be left with missing transaction records and unaccounted funds.
This means incorrect equity balances, overstated expenses, understated income, and other issues that become very apparent when you sit down with your CPA.
Don’t Affect Your End-of-Year Taxes
What’s the consequence of an unkempt accounting record? For one, it can trigger an audit when tax time rolls around. Audits are time-consuming to deal with because you need to make time to meet with tax professionals and provide them with records that you might not even have anymore. If you can’t reconcile the audit, then you could be liable for fees and penalties. Avoid this tricky situation altogether by keeping business and personal finances separate.
Don’t Put Your Personal Finances at Risk
Maybe it will temporarily give you peace of mind to pull funds from your personal accounts to resolve business expenses, but the effect that it has on your personal finances isn’t worth it. Perhaps you’re counting on the next “good” month so you can repay yourself out of the company account, but what if the next “good” month comes later than expected and you end up behind on the mortgage?
Don’t Throw Away Your Retirement
Whatever you do, don’t borrow against your 401K retirement account. Think about how many years of hard work it’s taken you to build that account, and how many years it needs to sustain you in the future when retirement comes. It’s not easy to conjure up 20 years’ worth of investments to replace the funds, so chances are that if you borrow from your 401K, you’ll end up retiring later than you want, or not at all. Your golden years are worth more than that.
Don’t Start Down a Slippery Slope
You could be telling yourself that you’ll borrow from personal accounts, but only this once - it’ll never happen again. That’s an easy promise to make, but it’s a hard one to keep. If you borrow from yourself once, it’s more likely to happen again; and if it happens twice, it’s likely to become a habit. Worse still, you could start dipping into company funds to fund personal expenses in return, telling yourself that it’ll all even out, and putting your business at risk.
It’s far safer to avoid this pattern altogether by keeping your business and personal expenses completely separated. So if you’re in a bind and you need fast business funding, what’s the right course of action?
Use Business Funding for Company Expenses
The solution is simple: If you need business financing, you should seek out a business loan. This gives you greater flexibility and working capital to meet your needs, but without the risk of funding yourself out of your own personal account.
The Right Lender for Your Needs
It’s best to bypass traditional bank loans altogether. Their requirements are stringent, approval rates are low, and the application and approval processes can take months. You don’t have that kind of time if you’re pinched enough to be considering your personal funds as a source of business capital.
Instead, try funding business expenses with the help of an alternative lender such as Mulligan Funding. We offer a quick application process, high approval rates, and fast disbursal so you can start tackling your business expenses as soon as possible. Multiple business loan options give you the flexibility to choose the solution that works for you, whether that means working capital loans or a business line of credit.
Stay away from your personal bank account and 401K, no matter how tempting it seems. Your business will be much healthier if you keep your finances completely separate, and Mulligan Funding can help provide the business funding you need, along with the perspective and caring of a financial partner who knows the small business struggle personally.
Call Mulligan Funding today to get more information about a working capital loan for your business.