How to Put Personal Money into Your Business

Author: Scott Allex, Business Development Officer 01/26/2023

Investing your own, personal money into your business is one of the primary methods that business owners use to fund their business. Self-funding may seem like a simple, no-strings-attached way to get your business started, but there are still risks involved and things you need to be aware of.

Use a Business Checking Account

Before sinking any of your own money into your business, consider discussing options with your CPA or accountant, as well as your attorney or legal counsel. They’ll likely recommend that you use a separate business checking account to keep the funds apart from your personal account(s) for accounting purposes. Keeping this process clean and neat will help with record keeping headaches down the road.

Identify the Source of Personal Funds

Keeping track of where your money is coming from is also an important step to document. Whether it’s from personal savings, sale of a property or business, or even a trust account, you want to keep accurate records of the source of funds. Taking money from a retirement account is usually not recommended due to the potential taxes and/or early withdrawal penalties you may face. Again, it is best to check with your tax and legal advisors to discuss your options and possible consequences, especially when it comes to liquidating qualified retirement accounts.

Move Personal Funds into Your Business

Once you’ve decided to put personal money into your business, you can choose to label it as either equity or a loan and write the check for deposit into your business account. Many business owners list it as equity. This means the funds are a contribution and that the business does not have to write up a business loan agreement or repay the loan. The transaction is simply an investment made in the business in return for increased equity. Again, make sure to document this transaction for accurate accounting and tax records.

Record the Transaction Properly

Even when investing your own money, it’s important to keep good records. It may be wise to have an accountant or bookkeeper look over this transaction.

Investing your own money into your business can be a risk, but those risks often lead to higher rewards. Not having to borrow money or seek out other investors can certainly increase your business profits, but you also need to be cognizant of the increased risk you are taking on. It’s important to weigh the risks and rewards of any transaction you make and never spend more than what you can afford to lose.

PlainsCapital Bank is here every step of the way to help you navigate a personal investment into your business. The business checking account page can help you get started with basic checking to checking plus sophisticated treasury management services. You can find a business account that gives you exactly what you need.

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