Commingling Funds in Business: Why It’s a Risk You Can’t Afford

Understanding Commingling

Commingling occurs when personal and business finances are mixed in a way that makes it hard to distinguish between the two. This can happen when:

• You use a business credit card for personal purchases.

• You deposit personal funds into a business account without documentation.

• You pay for business expenses from a personal account.

• You transfer money between accounts without proper records.

• You may even buy a new car on a loan paid by the business, that is titled in your personal name. A vehicle must be titled in the owner's name.

  
  

What is Inventory Commingling?

Commingled inventory refers to the practice of mixing together identical products from multiple sellers in a shared storage space, typically at a fulfillment center like Amazon's FBA. This means that when a customer purchases a product, it may be fulfilled with an item from any seller who has commingled their inventory, rather than specifically the seller who made the sale.

Key Aspects of Commingled Inventory

• Mixing of Products: Identical products from different sellers are stored together, regardless of who owns them.

• No Seller-Specific Tracking: Individual items are not tracked back to their original seller once commingled.

• Potential Risks: Commingling can create issues for sellers, such as the possibility of receiving negative reviews if a customer receives a damaged or counterfeit product that originated from another seller's inventory.

• Benefits for Some Sellers: Commingling can save time and effort on inventory preparation, as it eliminates the need for individual product labeling.

• VAT Implications: Commingling can also have VAT implications, particularly in international sales, requiring careful accounting and potentially multiple VAT registrations.

• Example: On Amazon, if two sellers both sell the same brand of coffee with the same UPC, Amazon may commingle their inventory. When a customer buys the coffee, it might be fulfilled with a product from either seller.

  
  

How to Avoid Commingling

Open Separate Accounts

Maintain distinct bank and credit card accounts for your business. This separation is crucial for tracking your finances accurately.

Document Everything

Keep detailed records of all transactions, especially if you transfer funds between personal and business accounts. Proper documentation can save you from potential legal troubles.

Use Inventory Control Software

Implement inventory control software, barcoding, and accounting software. These tools help you categorize expenses and maintain clean records of inventory, COGS, sales, vendor orders, and customer purchases, including sales tax.

Pay Yourself Properly

If you're a business owner, take a salary or owner's draw rather than dipping into business funds ad hoc. Document all inventory adjustments and adhere to tax requirements.

Follow Company Policies

If you're an employee, never use company cards for personal expenses unless explicitly allowed and documented with receipts. Following company policies can prevent misunderstandings and potential conflicts.

The Importance of Keeping Finances Separate

Commingling funds or inventory assets might seem harmless—especially in the early stages of a business—but it can manifest into serious legal and financial issues. By keeping your personal and business finances separate, you protect your company, your reputation, and your future.

Conclusion

In conclusion, understanding the risks of commingling is vital for any business owner. It's not just about maintaining a good practice; it's about safeguarding your business's future. Commingling can lead to complications that may jeopardize your business's success. Therefore, take the necessary steps to keep your finances separate.

Commingling Funds in Business: Why It’s a Risk You Can’t Afford