Loans from Personal accounts...

This isn't exactly a YNAB question, but it's a question of how to handle tracking and things for my small business.

Lately my income has tanked due to losing my biggest client last fall. I'm also shifting focus into a new area, and trying to get that going, so I haven't replaced all of that income.

As a result I'm needing to pay for things from my personal accounts to keep the business covered. Thank goodness I'm FINALLY in a position in my personal finances to do that (yay increase in part time job pay and paying off personal debt!)

SO. I keep some tracking spreadsheets that I give to my accountant for taxes, and I'm trying to wrap my head around how to keep up with those personal loans. I have never really had to do this before, and I'm trying to make sure that everything is clean and makes sense (and that I can pay myself back down the road when I get the income flowing again!).

I'm trying to track how much I am covering from the personal accounts, so I assume that should be marked as a negative number as a "loan from personal" in my business accounts.

My struggle is that some things I am partially funding (like I had enough to cover half the payment for something, so I moved the other half into my business checking account from my personal one) so it shows an inflow, but the outflow needs to be tracked as the payment itself.

This is getting really messy and it's stressing me out (on top of the stress of having almost no funds coming in...) so any recommendations or suggestions for how to keep it really clean and simple are VERY welcome! (and I might not have explained this as well as I would have liked, so if this is confusing, please let me know...)

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  • Hey, farfromtheusual ! I'm sorry to hear that you find yourself in this situation. Let's figure out how YNAB can help.

    I think the best way to handle this, if it's possible, is to transfer money to your business before making the purchase. Categorize the outgoing transfer from your personal budget to your "Invest in my business" category.

    In the business budget, categorize the inflow to the category you use for your owner's investment. I combine this with my owner's draw category. The total of all transactions in this category is my current equity.

    This will prevent your investments in your business from showing up as business income.

    I would be careful about using the word "loan" when describing this arrangement to your account, because a personal loan to a business comes with very specific tax rules. I suspect what you're doing is adding equity to your business, and plan to draw down your equity later, which is not a loan.

    Now, if you have existing business purchases that were made using a personal debit or credit card, things are going to get complicated. The best solution is to enter those in a cash account in your business budget, with a corresponding reverse transaction showing that you're increasing your equity by the same amount. I can walk you through how to do this if necessary!

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    • Matthew Thanks for the reply!

      My accountant actually refers to them as a loan from personal, so that's what I've notated them as. I'll double check with her and make sure that language makes the most sense.

      I think the biggest trouble is that some things I've actually covered with cash and paid for in the business, then transferred funds over to the business to cover.

      Some other things I've had to pay for with personal accounts directly, but should be attributed to the business itself.

      So some things show a positive inflow that coordinates with an expense in the business, but other things are just outflows, if that makes sense.

      And for my tracking purposes I run a spreadsheet with separate tracking outside of YNAB because I actually have more categories in YNAB than I do in my tracking that my accountant needs.

      It is mostly working out in YNAB, some things I just leave over spent and have to ignore the orange color 馃槪

      It's the spreadsheet that is getting all muddied up -because as I said, some things show a positive inflow (where I actually made a transfer to "loan" the money into the business), but some things are just expenses that we paid for out of our personal accounts (like new tires for the pickup truck, which went onto the BJ's credit card because we get cash back that way, so they couldn't be put onto one of the "business" credit cards).

      Like I said, it's really messy, and of course the lack of income and having to cover things with my personal expenses isn't making me feel any better about any of it, which makes it harder to figure out how to manage it.

      Thanks for your thoughts, I don't know if this helps, or just makes it more complicated!

      • MadDog
      • Navy_Blue_Pegasus.2
      • 8 mths ago
      • Reported - view

      farfromtheusual What you are describing is a shareholder loan in Canadian accounting language. There are two ways that it generally happens. One is that you pay for an item using personal funds and then record it in the business. For that, in YNAB, it may be difficult. That is the type of item that I would include on the spreadsheet. If you record it as outgoing of your personal YNAB budget to the business one, you would effectively be recording it twice. We do this for my husband's business and the accountant records it on the information there. We have a category in our personal budget for "Business Expenses". We use this to record these types of transactions to tell the accountant.

      For the second, you transfer cash into the business and then use it as needed. For these, I would recommend an outgoing category in your personal as "Business Investment" or similar. In the business account, record the incoming amount as "Shareholder Loan" which would differentiate it from regular income. You can then record the full transaction in the business budget as per normal. 

      Eventually, the accountant will need to marry up the two types of shareholder loans when they do your year end. Hope that this helps. I am not sure if the rules would be different in other countries.

    • farfromtheusual I'm probably not going to be much help on the spreadsheet side, but here are the couple of things I do know about. :)

      1. Assuming you're in the US, the reason you want to be careful about making a loan to your business is that loaning money to your own business requires three things that you probably don't want to do: (1) You must have a loan agreement in writing. (2) You must charge interest. (3) You must have a set payment plan. It sounds to me like what you're describing is raising your equity in the business, and that's very, very different from a tax perspective. I don't believe this is the shareholder loan scenario that MadDogdescribes, but only your accountant can say for sure.
      2. When you make a business purchase using your personal card, from an accounting perspective that's exactly the same as if you'd transferred money from your personal to your business account and then made the purchase using your business card. How you enter them in YNAB (or your business bookkeeping software, or spreadsheet) is different, but the end result is the same: you've increased your equity.

      I would take a step back and ask yourself:

      1. What's important to track for tax purposes? You need to track your deductible expenses and your equity in the business. If the business is a sole proprietorship or an LLC taxed as such, you probably don't even need to track your equity, since the business and your person aren't separate tax entities. (You probably still want to track your equity so you can understand whether your business is profitable, but it won't mess up your taxes if you don't.)
      2. What's important to track for personal budgeting purposes? I'm going to go out on a limb and say you don't actually care how much you've "loaned" your business. You're just applying Rule 3 on a larger scale. The business needs more money right now, and you're prioritizing that over categories in your personal budget. Later, when the business is back on track, the priorities will reverse鈥攂ut paying yourself back exactly the amount you invested in the business on any particular schedule probably isn't important.
    • Oh, one more thing. Are you only using the spreadsheet for your business bookkeeping? Or are you using YNAB, or Quickbooks or other bookkeeping software?

      The reason I ask is: YNAB or Quickbooks will make it relatively easy to track your equity no matter whether you're investing directly or by making purchases for your business. It sounds like that's a pain point in your current system, and it doesn't have to be鈥攖hough transitioning to a different system is likely to be a big undertaking.

      • MadDog
      • Navy_Blue_Pegasus.2
      • 8 mths ago
      • Reported - view

      Matthew yeah, shareholder loans in Canada that do not have those three requirements in Canada. I have worked in other small businesses as the office manager/bookkeeper and we have our own business as well. While I am not an accountant, it has never been raised in any of our discussions. 

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