Kevin SimpsonCPA Web Books · Founder at CPA Web Books

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 all money in business accounts whenever possible. He explains how the rule applies differently depending on the business entity—LLCs can mix business and personal accounts, while S‑Corp and C‑Corp owners (especially sole proprietors) generally need separate business accounts and may be required to use personal accounts for certain transactions. Mike also clarifies that owner’s pay is initially business money; it remains in a business account until it is transferred to the owner, 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 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.