May 21, 2025

Why Your Business is Not a Piggy Bank

Treat your business finances like an investor or buyer would— separate from your personal life.

When I start working with business owners, going through the financials can be tricky…and eye-opening.

The financials reveal not only a picture of the company’s performance, but in small businesses, evaluating the numbers helps us identify problems to address.

One of my clients, a residential home builder, used company resources and equipment to build a barn on his property. The $50,000 cost was buried in the operational expenses of the business.

Here are six clear signs that it’s time to stop treating your company like a piggy bank:

1. Your Financial Reports Don’t Make Sense

Red flag: You can’t explain where the money is going, your profit margins fluctuate wildly, or your accountant keeps asking questions you can’t answer.
Why it matters: If your financials aren’t clean, you can’t make good decisions—or defend them to investors, lenders, or buyers.

2. Your Tax Preparer Looks Nervous

Red flag: Your CPA is constantly flagging transactions, asking for justification on deductions, or warning you about audit risks.
Why it matters: Sketchy books increase your audit risk and can lead to penalties or back taxes.

3. Cash Flow Is Always Tight—But Revenue Is Growing

Red flag: Sales are up, but there’s never enough money to reinvest, pay vendors on time, or grow the team.
Why it matters: Leaking cash for personal use means you’re starving the business just when it needs fuel.

4. You’re Embarrassed to Show Your Financials

Red flag: You avoid sharing P&L with employees, potential partners, lenders, or advisors because the books “aren’t quite cleaned up yet.”
Why it matters: You’ll lose credibility and miss opportunities if your numbers aren’t investor-ready.

5. You Couldn’t Sell the Business If You Wanted To

Red flag: The company’s financial value is unclear because so many personal expenses are mixed in.
Why it matters: A buyer wants to see a clean, standalone business—not a lifestyle engine.

6. You Say “It’s All Mine Anyway”

Red flag: You justify using the business for personal expenses because you’re the owner.
Why it matters: That mindset leads to short-term decisions and limits long-term wealth creation.

If two or more of these sound familiar, it’s probably time to shift your mindset from “this is my money” to “this is an asset I’m building.”

That shift alone can dramatically change how the business performs—and how it’s valued.

Here’s a simple illustration to show how saving taxes by running personal expenses through an LLC can actually harm enterprise value, more than it helps:

🎯 The Setup

Business Owner A runs a profitable service-based LLC.

Revenue: $2,000,000
Real Business Expenses: $1,200,000
Personal Expenses Run Through the Business: $100,000 (e.g., car lease, family travel, meals; golf club)
Net Profit (on books): $700,000
Net Profit (true economic value): $800,000

💸 The Tax “Savings”

By running $100K of personal expenses through the company, they are reducing taxable income.

Assuming a combined tax rate of ~35%, they save:

$100,000 x 35% = $35,000 in taxes saved

Seems like a smart move… until they try to sell the business.

🏦 The Valuation Impact

Let’s say the business would sell at a 4x multiple of earnings. A buyer uses the net profit to value the company.

On the books (with personal expenses): $700,000 x 4 = $2.8 million
True earning potential (if cleaned up): $800,000 x 4 = $3.2 million

💥 The Hidden Cost

By disguising $100K of personal expenses, they saved $35,000 in taxes…

…but lost $400,000 in enterprise value.

🔁 The Bigger Picture

When you treat your business like a personal ATM:

It muddies your financials
Hurts credibility
Depresses valuation
And makes due diligence a nightmare

What you gain in short-term tax savings, you often lose 10x over in long-term value.

✅ Takeaway

If you’re building a business to exit, raise capital, or attract partners, I recommend having clean books over clever write-offs.

Enterprise value comes from clarity, not creativity.

If this sounds like your situation, here are 3 things you need to stop doing:

1. Stop Commingling Personal and Business Finances

Why it matters: Blurring the line between personal and business expenses can lead to legal and tax issues. It undermines the integrity of financial records and weakens liability protection in an LLC or corporation.
Example: Using the company card to pay for personal travel, groceries, or home utilities.

2. Stop Running Personal Lifestyle Through “Disguised” Business Expenses

Why it matters: Deducting non-business expenses as business write-offs (like family vacations masked as “retreats” or home renovations listed as “office improvements”) can trigger IRS audits and tax penalties.
Example: Writing off a personal vehicle or luxury item with no legitimate business use.

3. Stop Justifying It Because “It’s My Company”

Why it matters: Even if you own 100% of the business, treating it like a personal bank account erodes discipline, makes it harder to sell or raise capital, and signals poor governance.
Example: Paying yourself irregularly or using company cash for ad hoc personal purchases without documentation.

Here are 10 practical actions to start doing now to improve financials in a small business doing $2M to $10M in revenue, with a focus on clarity, control, and enterprise value:

1. Close Your Books Monthly (on Time)

Why: Timely financials give you a scoreboard. Waiting until year-end is too late to course-correct.
Action: Set a deadline (e.g., by the 10th of each month) and stick to it.

2. Separate Owner Compensation from Distributions

Why: Blending salary, perks, and draws makes your P&L unreadable and reduces valuation.
Action: Pay yourself a market-based salary and log other payments clearly.

3. Use Accrual Accounting, Not Just Cash Basis

Why: Cash basis hides the real timing of income and expenses, which can mislead you (and investors).
Action: Shift to accrual if you’re not already—especially if you have receivables or project-based revenue.

4. Track Gross Margin by Product/Service Line

Why: Revenue is vanity—margin is reality. You need to know what’s truly profitable.
Action: Break out your P&L by offering and monitor margins monthly.

5. Create a 12-Month Rolling Forecast

Why: Static budgets become irrelevant. A rolling forecast keeps your eyes on what’s coming.
Action: Update projections monthly based on actuals and new insights.

6. Reduce Owner-Dependent Spending

Why: Personal perks (cars, travel, meals) distort profitability and hurt valuation.
Action: Gradually eliminate these from the books or clearly classify them as add-backs for clarity.

7. Implement Department-Level Accountability

Why: When no one owns the number, the number drifts. Give budget responsibility to team leads.
Action: Assign P&L ownership for each function—sales, marketing, ops, etc.

8. Use Dashboards for Leading Indicators

Why: Financials are lagging—leading indicators help you stay ahead (e.g., sales pipeline, churn, production efficiency).
Action: Build a weekly or monthly dashboard to track operational and financial KPIs.

9. Get a Monthly Financial Review with a Pro

Why: An experienced CFO or controller sees red flags and patterns you might miss.
Action: Hire a fractional CFO or senior accountant to review financials monthly and make strategic suggestions.

10. Prepare for Due Diligence Before You Need It

Why: Clean books open doors—for financing, exits, or partnerships. Messy books close them.
Action: Keep documentation, contracts, and clean P&Ls ready as if you were preparing to sell.