Flippers organizing bank accounts
Investor · San Diego, CA · Member since 2012 · 4 posts · 0 votes
Flippers, what's the best way to organize your bank accounts?
I have a personal account and an LLC business account.
Currently, I keep the bulk of my money in my personal account and transfer funds as needed to my LLC account. My LLC account has a "main" account for business expenses and a sub-account for each project I am working on. As projects finish, their sub-account closes. When a new project starts, a new sub-account is opened.
Would be easier to keep my personal account out of it and keep all available funds in the LLC "main" account. Especially for moving funds in and out of sub-accounts....and for providing Proof of Funds in the LLC name.
There are also some liability issues with keeping all my funds in the same LLC account, right? Is my cash "safer" the way I currently operate (in my personal account)? Not planning on ever being sued, but what if?
How do you guys organize multiple projects within your bank accounts?
Thanks in advance...
To make this a little more clear guys, let's define that "personal account" so that we can see if it's personal money being used or if it is company funds that have not yet been disbursed to your personally.
Money held in a business is a capital account, could be ABC, LLC Capital. From there you could use it as your operating funds. Under that you would have sub-accounts, 123 Walnut ST. 4561 Oak St. etc.
These could be used for direct project costs. You could also have your accounts payable, under each sub-account for labor, mortgages, insurance, etc.
Your personal or profits is in the capital account until you disburse it and you do that through Jason's Drawing Account, where a check is written to you personally and on the check you should note on the for line "Drawing".
If you need to put your personal money in the business from your personal family account, write it to ABC, LLC, Capital.
You should also note in the minutes of the LLC when money is contributed to the LLC or taken out to the drawing, or address these deposits and disbursements in the operating agreement to ensure that the business account is not being "used" passing money through for non-business matters. Commingled funds between you and your LLC is one of the best ways to lose your personal liability protection.
To make this a little more clear guys, let's define that "personal account" so that we can see if it's personal money being used or if it is company funds that have not yet been disbursed to your personally.
Money held in a business is a capital account, could be ABC, LLC Capital. From there you could use it as your operating funds. Under that you would have sub-accounts, 123 Walnut ST. 4561 Oak St. etc.
These could be used for direct project costs. You could also have your accounts payable, under each sub-account for labor, mortgages, insurance, etc.
Your personal or profits is in the capital account until you disburse it and you do that through Jason's Drawing Account, where a check is written to you personally and on the check you should note on the for line "Drawing".
If you need to put your personal money in the business from your personal family account, write it to ABC, LLC, Capital.
You should also note in the minutes of the LLC when money is contributed to the LLC or taken out to the drawing, or address these deposits and disbursements in the operating agreement to ensure that the business account is not being "used" passing money through for non-business matters. Commingled funds between you and your LLC is one of the best ways to lose your personal liability protection.
I don't intend to imply that I clearly understand all the LLC/taxes rules but I have learned that if you are frequently transferring money from your personal funds to the business and back that can be considered comingling of funds and can lead to a judge or the IRS determining that your LLC is just a front and that you really have no business and loose any tax and/or liability protection provided by your LLC.
Every time you contribute money to your business it must be properly recorded and documented. You can call it capital contributions and/or loan. If you make it a loan you must have a Note for it and pay interest. I can't quite exactly remember the advantage of capital contributions over a loan, my accountant explained it to me, but either way make sure you figure out the best choice for you.
What I have done over time is to leave the profits from our flips in the company and take out only what/if I need. Therefore my need to do capital contributions has gone down.
Making a contribution to capital increases the value of the company by increasing cash assets. Taking a loan is a liability to the company and decreases the value but that is offset by a property usually, but if borrowed without an asset purchase, it can reduce value.
Luis makes a good point, passing money back and forth, especially in small amounts. You really need to manage personal funds and not tap into the business and use it as a bank account. Take a draw every two weeks or monthly, just like any other employee would have IMO.
I'm not lawyer but I don't think creating separate bank accounts under a single LLC protects if you are sued. Creating separates LLCs would protect you. There are lawyers who specialize in this though and you if you really want the best asset protection, set up a meeting with them. It is money well spent.
Adding an account for each project could eventually result in a huge and mostly obsolete chart of accounts. This is not a bank account problem, it’s an accounting issue. You can do everything from one checking account.
Software like Quicken or Quickbooks will allow you to solve this problem easily. In this case, you can create a “class” for each project and account for each income or expense by assigning it to an individual class named after, say, the address it’s associated with.
Your report might look something like:
----------------------- 12 Park Pl ----- 220 Boardwalk ---- 5 Pacific Ave
Flipping Business
. Drywall
. Electrical
. Plumbing
--------------- Total
Lending Business
. Interest income
. Legal fees
. Office supplies
--------------- Total
(Sorry for the dots and dashes. Formatting issue with this site.)
All of this would be out of one checking account under one LLC. Note, you could run several businesses from one LLC (flipping and lending, in this example) and account for all income and expenses from one checking account.
There are many bookkeepers that specialize in QuickBooks who could help you set this up and show you how to use it. You probably also want to have it reviewed by a CPA so he or she can do your taxes for you and show you how to add and remove money from your business without fear of comingling your personal funds and losing any asset protection offered by your entity. Good luck.
Jeff
Jeff is correct and I was speaking in accounting lingo, you have seperate accounts as Jeff mentioned, one for each property, but you need only one bank checking account.
And, that's not to say one company could not have more than one checking account, but that usually only happens in larger organizations, like having a payroll account and it doubles your work, so stay with one as long as one is sufficient.
There is really no issue with liability and bank accounts in the company name, it's when you begin to commingle funds of your own or any other entity with company money that you get astray.