Erika Jones, CFO, CCTAProfit First Professionals · Certified Fractional CFO and 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 which bank accounts should be designated as business versus personal under the Profit First system. He gives a simple rule of thumb: keep everything in a business account whenever possible. He explains that the appropriate account structure depends on the business entity type—LLCs may mix business and personal accounts, while S‑Corporations and C‑Corporations generally require separate business accounts; sole proprietorships may be forced to use personal accounts. Mike emphasizes that money stays a business asset until it is transferred out of the owner’s pay account, at which point it becomes personal funds.

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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.