Accounting brains: I need a little organizational help...

[snoozy]

Okay, I have/am an "S" corporation, which has a savings and a checking account. I am shortly going to be receiving some investment money (a loan), out of which I will purchase a bunch of stuff and pay for the development of, a new enterprise (a teahouse, as it happens .) The investment money is only for the new enterprise, and I want to keep everything neat and tidy. Should I put the investment money in the savings account and only transfer to the checking account as needed, or should I put the money into the checking account and only use the checking account for the new enterprise? I prefer to use the debit card from the account, rather than write checks or use cash, but of course there will be times when I must use checks or cash. I also want to keep everything to do with the teahouse separate from my other business lines, and eventually I won't be doing any of those anyway.

As I write this, it seems obvious that I should have separate bank accounts for the teahouse, and then another for everything else, but it is a corporation and it is all one accounting entity to the IRS, just different DBAs, no? What does it look like to a bank?

[CatsPaw]

My vote is to establish an LLC for the teahouse, open specific accounts for it thru the LLC, deposit the investment into the savings account, distribute it to the checking account in installments as needed.

The LLC becomes an entity unto it's own, seperating it from any other businesses you have and protecting you personally. The savings account will at least acrue some interest while the funds are waiting to be distributed.

am I right? do I get a cookie? I'm actually heading towards an LLC upon advice from my attorney and am anxious to see the right answer from someone who actually knows about this stuff.

[1GandJ1]

Ding ding ding. Give that man a big bag of cookies. Set up yourself an LLC and keep EVERYTHING separate. Have fun and great luck with your venture. Tea anyone?

[snoozy]

If I'm already an "S" corp, what is the advantage of LLC? How are they different? I've been/had an "S" corp for 18 years.

[LagoVistaFarm]

At a minimum I'd keep a seperate checking/savings account so if the loaning party wants to see the books they would have a much easier time and you may not want them privy to all your business. People do track multiple venture out of a single set of books, it just depends on how much bookeeping you like.

Is the "loan money" an investment by an individual or a loan by a financial institution?

[snoozy]

An investment by an individual.

[MorrisonCorner]

I'd set it up as a seperate company. That way the failure of one or the other won't impact on the second company, provided it is structured as an LLC or corporation.

T

[CatsPaw]

yyyeeaaahhh...where's my cookie!?!

I worked for a wealthy client that said he sets up LLC's for everything all the time (of course he can afford the $500 or $600 a pop or whatever it costs.) He and his buddies wheel and deal. So when one gets an idea they do an LLC and do the deal. When it's done, so's the LLC.

I guess it's just starting up another company. No reason you can't own more than one company. These days, I think, that seperation is getting more important than ever. Everybody is so....oOOo OOo... I learned a new word.....We live in such a litigious society, you have to protect yourself.

[MarleneS]

The LLC will likely protect you personally, from any liablity from the company. It is also likely that with an LLC only funds associated with the business can be part of the business transaction/records.

Do not ever try to fool yourself by putting more of your personal money into a business and thinking the business is making money

Best bookkeeping advise: Have a detailed recording of where every penny comes from and where every penny is spent.

Happy Tea Serving to you

Marlene

[The Paw]

I am in Canada, so I am not as familiar with the differences between LLC and S corporations, but I imagine they accomplish the same thing in terms of limiting personal liability. As others have mentioned, a separate corporation would protect your current ventures from claims related to your new venture and vice versa. However, in the world of small business, lenders usually want your personal guarantee unless your corporation has significant assets, so it may not make that much of a difference in practical terms. You should talk to a lawyer about whether to set up a different corp or not.

As far as your original question, there is no real need to set up a separate bank account, and it does not really matter whether you deposit it in chequing or savings account. The chart of accounts you keep will have to show a balance sheet item for the equity investment and both operating expenses and capital purchases will be reflected on your income statement no matter which account they are made from. The only reason to use a separate account (or chequing versus savings) is if it helps you keep it clear and organized in your own mind.

Whichever way it goes, keep written receipts and records of all transactions and what they are for. It is always a good idea to set up your financial system with your accountant first, rather than simply handing them a shoebox of receipts at the end of the tax year. A well designed system up front will not only save the accountant time later (and you $), but it will allow you to accurately track how your business is doing throughout the year.

That's my take anyway...