Sole trader tip: mixing business and personal funds this december
December is chaotic. You've got business expenses winding down and personal expenses for holidays and gifts ramping up. For sole traders, this often results in a mess: business money going out for personal things and vice versa.
While it feels convenient in the moment, mixing funds now creates a huge headache for us when bookkeepers reconcile your books later. The ATO needs crystal clear documentation on what is a true business expense and what is a drawing (money you take for yourself).
Here is a simple, down to earth rule to follow right now:
Set an Allowance, Not an Open Tap
Instead of paying for Christmas shopping directly out of your business account, follow this two step process:
Transfer a Set Amount (The Drawing): Decide how much personal money you need for the next few weeks and transfer a single, lump sum payment from your business account to your personal bank account. We record this one lump sum as a 'Drawing.'
Use Your Personal Account: Do all your holiday shopping, gift buying and personal travel spending exclusively from your personal account.
This simple boundary means bookkeepers only have to classify one transaction ('drawing') instead of checking 30 different small purchases in your business bank feed. It keeps your books clean, clear and perfectly separated for tax time. Trust us, your future self (and your bookkeeper) will thank you!
This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided in relation to your own circumstances.
