3 Reasons to stop treating your business like a personal piggy bank

I know that as a business owner, your company can feel like an extension of your identity. However, keeping the lines between your business and personal finances clear is vital to the legitimacy, legality and future of your business. It is your obligation as the leader of your company to set boundaries between your personal and professional expenses because when overlooked, this can lead to bankruptcy and legal risks. The legal risks here lie within your “corporate form,” which defines how a company is legally organized, owned and operated. If these legal risks lead to court, you ultimately jeopardize the court’s ability to observe the corporate form, meaning the court can hold an individual (in this case the business owner) liable for the business’s debt or other actions.

Suppose personal purchases hinder your ability to pay the business’s bills and stakeholders. In that case, the court has no option but to hold you liable, potentially leading to the bankruptcy of your company and the destruction of your reputation. It is crucial to understand the outcomes of your financial choices, how these decisions impact stakeholders and your business’s legitimacy in court.

Below, I have elaborated on a few reasons why it is essential to recognize corporate form and stop treating your business like a personal piggy bank.

1. Risk mitigation

Taking risks in your business and being a risk to your business are statements that do not align. The biggest risks when combining corporate and personal finances are seen in court.

But risks can continue outside of the court when combining corporate and personal finances. Some find it difficult to track finances and monitor business performance, leading to a lack of clarity in financial management. Others are at risk for personal credit scores and tax implications that make distinguishing personal expenses from legitimate business expenses challenging.

2. Fair financial reporting

As a business owner, you have an ethical responsibility to report your finances fairly, pay employees fair wages and be transparent with stakeholders. Having personal and business assets filed together can lead to confusion about your company’s legitimate income and hinder your ability to pay stakeholders.

How can you expect a judge to believe you will pay overdue balances and bills when a trivial responsibility, like reporting your finances, is incorrect? Not reporting your finances fairly weakens the protection of the corporate veil and ultimately tells the court you are untrustworthy; therefore, they should show no mercy.

3. Future growth and success

It is no secret that most business owners aim to increase revenue. However, if you are buried in legal fees and paying your business’s debts out of pocket, there is no way for your business to prosper. When resources like money are removed, you interfere with your business’s ability to take intelligent risks and create new revenue streams.

By separating your finances, you decrease potential legal interferences and have a clear vision of your business’s potential.

Final thoughts

When your business succeeds, you succeed. A company can only grow with proper leadership, support and financial responsibility. When you begin separating your personal life from work, your ability to look through business-centered lenses increases, and your potential for legal issues decreases. Remember this when deciding whether to use your corporate credit card or personal.

In the long run, separating your finances will ensure you observe corporate form and skyrocket your business’s chances of success.

Read this article on The Business Journals here.