Basic Training: Bookkeeping and Business Startup

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq.

Nina L. Kaufman, Esq., owner of Ask The Business Lawyer, is an award-winning business attorney, speaker, and Entrepreneur Magazine online contributor. She saves consulting and professional services companies time, money, and aggravation by serving as their outsourced legal counsel.

Posted on April 23, 2015 in Form a Company

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Today’s post deals with the conundrum, how to account for business expenses without a company bank account, and how to set up a company without business funds?

Q.:  “I recently formed an LLC to create an online store. Because I saved diligently I had enough money in my personal savings account to cover all setup costs for the company (ex: LLC formation, website development, logo creation, etc.). I have initially paid for all business-related expenses with my personal AMEX because I did not yet have a business bank account set up.

A lawyer told me that I would be able to account for the use of my personal AMEX/savings by issuing promissory notes from my business to my personal self. I wanted to know how you would suggest using my personal funds to fuel my startup and how I should properly account for this in my business books in order to keep my personal and business separate.”

A.: The attorney you spoke to had a good point: If you are treating the money you put into the company for startup as a loan and not as a capital contribution, a promissory note would be in order. Make sure you also provide for a reasonable interest rate–the IRS doesn’t look kindly upon no-interest loans. Somewhere between 4 percent and 6 percent is common–and state when the company will start making payments. In addition, you may want to have the LLC issue “minutes” (a brief write-up) acknowledging your contribution and confirming that the funds will be repaid.

However, as to setting up your books and deciding how much should be deemed a capital contribution and how much should be a loan (if any), it’s best to speak to your accountant. Definitely set up a separate bank account for the LLC.  Once that decision has been made, a bookkeeper can help you keep track of it.

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