Dave WordenTriumph Business Solutions · Founder

Ask Mike -Business VS Personal Accounts For Profit First

3 Sept 2019 · 1 min

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In this Ask Mike Q&A, Mike Michalowicz answers Kevin Allman's question about which bank accounts should be designated as business versus personal under the Profit First system. Mike’s core rule of thumb is to keep all money in business accounts whenever possible, treating the business’s cash flow as business money until it is formally disbursed to the owner. He explains how the appropriate account structure varies by entity type: an LLC may blend business and personal accounts, while S‑Corp or C‑Corp structures generally require strictly business accounts. For sole proprietorships, personal accounts may be unavoidable. Mike also clarifies that even the owner’s pay should remain in a business account until the funds are transferred out to the owner’s personal account, at which point the money becomes personal.

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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 in business account. Make it that simple. Now, if you have an llc, they could be business and personal accounts mixed together. If you have an S Corp or C Corp, you're probably going to 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 through 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, even 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.