We’ve all been there, a super cool coaching or course opportunity presents itself and you don’t have the funds in your biz account. Perhaps you’re just getting started or perhaps you’ve already reinvested your cash back into your business. You’re so sure about this opportunity that you’re going to pay for these biz expenses with personal funds, but what’s the best way to do that? How do you avoid losing the projection of your LLC? How do you pay yourself back? Here are your options.
Biz Expenses Scenario 1
You’ve got personal cash
This is the most easy and straightforward option. If you’ve got the cash in your personal accounts then the best thing you can do is transfer the money to your biz account and then purchase the course or coaching from your biz account. The transfer into your biz account would be recorded as Owner’s Contribution, and the purchase would go to whatever expense account you use for these types of items (I like to use Training and Education). But what if it’s not that simple?
Biz Expenses Scenario 2
You’re putting it on a personal card with other personal expenses
You’ve got space on your personal credit card and you’re purchasing with that. You’ve got two separate options for recording this.
If you plan to repay yourself once your biz has the cash then I would set this up as an expense/bill due to you. This creates a liability for your business. You can do this most easily using the bill feature in your bookkeeping software. The vendor that the biz owes is you. Then as you make payments to yourself from your business accounts you will apply them as payments against this bill. See the video below for a walk through of what this looks like.
If you do not plan to repay yourself (this is the way to go if you don’t expect to have extra cash in your biz for a while) then you would record a manual journal entry to record the purchase. You will debit your expense account - likely training and education - and you will credit an owner's contribution account. This basically ends similarly to scenario one (with expense and owner’s contribution), you just skip the cash step. See the video below for a walk through of what this looks like.
Biz Expenses Scenario 3
You putting it on a personal card that is ONLY used for Biz expenses
In this case you can treat your credit card as a biz credit card, but only if you do not use it for anything personal. I would connect a card meeting these specifications to your bookkeeping software. In this case you would record the transaction as training and education. Any payments on the card with biz money would just be a transfer between your checking account and this card. Any payments with personal money would be considered an owner’s contribution (but I would still recommend transferring the money from personal checking to biz checking and then paying the credit card).
The Point
Most businesses I work with are LLCs, and the point of an LLC is to protect your personal assets in the case that something happens with your business. With an LLC you’re basically saying “this business is separate from me”. However, the more you commingle your business and personal funds the more you put this LLC protection at risk.
If your business was sued and they were looking at your finances would it be clear that you and your business are two separate entities? Or would your relationship status be ‘It’s Complicated” at best? For the love of all things LLC, KEEP IT SEPARATE! I highly recommend transferring cash in and out of your checking accounts and making relevant business and personal purchases from the correct account.
The DON’Ts
Don’t make payments directly from your biz account to pay off your personal credit card. This looks super sketchy. Transfer the money to your personal account (categorize it as owner’s pay) and then pay your personal card.
Don’t buy groceries or anything else obviously personal with your biz money (checking or credit cards). The CEO of Apple doesn’t buy personal groceries with his company card, and you shouldn’t either!
Don’t do 15 different things. Pick a method of paying for things and stick to it. Either you always transfer money to and from your checking account (to pay personal or biz credit cards) or you always pay them directly with personal funds and record it as an owner’s contribution. But don’t do both. It’s just that much more difficult to untangle how you’re really operating your business.
Protect yourself, protect your business - KEEP IT SEPARATE!
Questions? Ask them here, I’d love to help!
