Christie JungeA Plus Solutions Inc. · CEO | Profit First Professional

Ask Mike -Business VS Personal Accounts For Profit First

3 Sept 2019 · 1 min

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In this Ask Mike segment, host Mike Michalowicz answers a listener’s question about how to categorize business versus personal bank accounts under the Profit First cash‑flow system. He gives a simple rule of thumb—use business accounts for everything whenever possible. He then explains how the rule applies to different entity structures: an LLC may mix business and personal accounts, S‑corp or C‑corp owners generally need separate business accounts, and sole proprietors may be forced to use personal accounts. Finally, he clarifies that even the owner’s pay should stay in a business account until it is transferred out to the individual, at which point it becomes personal money.

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Welcome to Ask Mike. This is Mike Michalowicz, and this question came in from Kevin Allman. Maybe one of the Allman brothers, just so you know. So here's his question. He says, "Mike, which accounts should I have as business accounts, and which accounts should I have as personal accounts when it comes to Profit First?" Here's the rule of thumb: make everything a business account. Make it that simple. Now, if you have an LLC, there could be business and personal accounts mixed together. If you have an S corp or C corp, you're probably gonna need to only do business accounts. If you're a sole proprietorship, in that case, you actually may be forced to do personal accounts. The rule of thumb is when you can, just have everything be a business account, because the money that flows to the business is for the business's use until it disperses to you. So even the owner's pay, Kevin, when money goes into owner's pay, keep that business account. When it transfers out of owner's pay to pay you, that's when it goes and becomes your personal money.