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Personal banking refers to the banking services available to individual customers. Personal banking is through local branches of banks. Banking services for personal banking vary widely. Opening different types of bank accounts, credit card facilities for individual customers, mortgages, personal loans, lines of credit, purchasing cars on interest and insurances are offered.

There are many other services that are provided along with personal banking services. For example, ATM services, online banking services, money/credit transfer to other bank accounts by the way of funds transfer, utility bill payments, phone banking, 24-hour services of ATM machines to withdraw cash, retirement planning services, insurance services, financial advising and many other services are provided by banks. In today’s world, a few personal banking services are also provided by other financial institutes like insurance companies also give loans, mortgages and retirement plans.

Small businesses indicate private companies, business partners, and single proprietorships. There are fewer employees in small businesses. Annual revenue is also less than a medium sized/regular sized businesses.

How Small Business and Personal Banking are Mingled

When an entrepreneur/financier mixes his personal account with a business account, many adverse things may happen. Business bookkeeping will also become mingled with personal banking.

Entrepreneurs have to face so many challenges and decisions on how to set up a small business, how to run business operations and how to manage finances. They have to decide the best suitable location to start their small business to generate enough income and annual revenue. If a person wants to open a bakery, they will choose a place where customers can access it easily and many other things are focused on choosing a location. While making these decisions, the entrepreneur often uses his own personal account for investing money into the business as investment capital. Using their own personal account creates a sticky business situation. This is because the entrepreneur’s personal account will also be mingled with other bookkeeping and accounting components of the business. This is how personal banking mingles with small-business bookkeeping and accounting. From the  entrepreneur’s point of view, it seems easy to use their personal bank account to fund finances for their business. Small business owners are usually inexperienced to start and do not know the adverse effects this mingling of personal banking and small business can do to them and to their business. 

Entrepreneurs do not realize the long-term consequences of mingling personal banking and small business bookkeeping. They think it is better to save time for paperwork and going to banks for opening new accounts. They think they have to invest a small capital to start a small business and it can be easily done with their personal account. That’s why many use their personal checking bank account for their business. This mistake is mostly made by the beginners in business who want to invest their hard earned money into a business to generate profits.

Adverse effects of mingling Small Business and Personal Banking

  • Small business owners who mix personal banking with business operations often do not properly keep a check and balance on accounting statements. They do not interpret cash flow statements and financial statements with the balance sheets in a productive way.
  • Business bank accounts are very useful for the business owners. In a time of need, they can get immediate loans and financial services. Credit card and debit card payments are made easily along with cash and check services. Customers use these facilities and come back to the same business when they are made convenient.
  • If the income generated is separately given to individual salary accounts of the small business owner then there is less percent of tax charged. Tax deductions can be made accurate. But if the personal banking account is mingled with the business account, then tax will be charged at a higher percentage.
  • Tax is paid on time through business accounts. Cash flow statements must only refer to business operations, not personal banking. Thus bookkeeping functions are made easier.
  • An audit is for business accounting but, when both accounts (personal and business accounts) are intertwined, the income and expenses are misreported. This affects the audit process as well.
  • If a personal credit card is used for any of the business operations then a log of all records of business operations must be kept. This is a difficult and time-consuming task to do. It should be error free as well. Mingling personal banking and business bookkeeping makes it difficult to track the records.
  • As the business grows, financial needs will increase and it will eventually need a separate business account. A separate business account gives a clear picture of business functions and the credit history of the business will be clear.


A separate business account prevents mishaps in the interpretation of accounting statements. It increases the credibility of the business. When the business grows from a small investment, eventually a separate account will be a requirement.

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