Commingling - The New, ‘Dirty’ Word in Banking

This is the 1st of a 5-part financial literacy series where we’ll discuss trending topics of interest to entrepreneurs.

Any entrepreneur will tell you that owning your own business is, in essence, a compilation of many different motivations and emotions. It’s an idea persevered and brought to life, a passion to drive innovation and chance, a want of flexibility and unconventionality, both professionally and personally. There are endless moving parts in running a small business, and an equally exhaustive list of assumptions and technicalities that have the ability to fly under the radar without due guidance. One such consideration is a word that has experts putting their feet down in resounding agreement of what not to do when it comes to structuring and safeguarding your business: Commingling.

Simply put, commingling is the mixing and usage of personal and business funds without any clear distinction between the two. It might not sound intimidating, but commingling runs the risk of provoking unnecessarily complex situations with regards to your personal and business liability. To employ another perspective: that pair of shoes you’ve been eyeing for weeks from your favorite brand? Without a second thought, you place your order with your business’ credit card. Or: you’ve got a new hire, and you want to provide them with a work laptop. So, you foot the bill from your personal account and call it a day.

Those scenarios might seem inconsequential. The overall idea that there needs to be a strict differentiation between your monies might seem oppressive. How you choose to spend, regardless of the whether it’s business-related or not, isn’t a reflection of your overall business practices. Right?

Unfortunately, it’s not so black and white. The lines that commingling blurs, open paths for both accounting and legal ramifications, and the possibility of your business’ veil being pierced. In the event of audits, business debt or lawsuits, for example, any evidence of commingling calls your legitimacy into question. These issues can then extend to your personal assets if your records are deficient at best, and erroneous at worse.

The question is, what can you as a small-to-medium enterprise (SME) do to safeguard your business as it relates to commingling? Here are three things you can start with:

1. Setting Up Separate Bank Accounts
   Your business needs to have its own bank account, full stop. Cycle your business funds through said account, and ensure that all expenses go through there or your business’ credit card. Accidents do happen, and if you unintentionally make a business purchase via your personal account, or vice versa, take immediate steps to reimburse the affected finances. As your business grows and scales, new elements will be established that add extra layers of complexity to your day-to-day operations. Holding separate bank accounts will provide you with long-term peace of mind.
 
2. Becoming a Separate Business Entity
   Incorporating your business can protect your personal liability as a contingency for unforeseen circumstances, legal or otherwise. Having these structures in place isn’t only a sound business decision; it’s a show of credibility when speaking with investors and the like. For reference, the Guyana Office for Investment has details on starting a business, and the forms of ownership available to interested persons. The Small Business Bureau also provides information on the steps to register your business legally and with the bureau https://sbb.gov.gy/registering-your-business/registering-with-the-bureau/.
 
3. Educate Yourself
   Use your bank as a resource for topics such as commingling. Assessing your business becomes easier when there is a mutual understanding of what’s expected and where pitfalls can happen. Additionally, it takes much of the guesswork out of providing services (for example, credit cards and loans) to your business when there is a transparent process for you to follow, and for your bank to track.