Cash Flow for Law Firm Owners Part 1: Why You Must Separate Business and Personal Finances (Ep. 134)
Are you constantly shuffling money between your personal and business bank accounts just to keep things afloat? You’re not alone—and you might be setting yourself up for avoidable stress, tax headaches, and long-term financial risk. If you’re a law firm owner seeking to grow your business and your wealth, taking control of your cash flow starts with one foundational move: separating your personal and business finances.
Why Law Firm Owners Can’t Afford to Mix Personal and Business Finances
Mixing business and personal money is one of the top mistakes we see among law firm owners. Sure, it may seem easy and flexible at first. But let’s break down why this approach is costing you clarity, peace of mind, and most importantly opportunity to build lasting wealth.
1. Confusion and Lack of Clarity
When you’re using your firm’s debit card at the grocery store or pulling from your personal savings to cover payroll, you lose track of what’s truly yours and what belongs to your practice. Without clear boundaries, you’ll find it almost impossible to answer questions like:
Can I hire another associate?
Is it smart to take that family vacation?
Is my firm even profitable?
2. Financial Blind Spots
The reality is, you may be making good revenue but have no idea if you’re really turning a profit. Intermingled finances mask the true health of your business and personal life, leading to poor decisions and missed growth opportunities.
3. Increased Stress and Legal Risks
Constantly moving money back and forth adds unnecessary stress and can trigger legal problems. Commingling funds blurs the “corporate veil” that protects your personal assets. In an audit, lawsuit, or sale, this mix-up could expose your personal savings, house, or other assets to risks that should have been limited to your business.
4. Missed Wealth Building and Business Growth
You can’t build true wealth if you don’t know your numbers. Law firm owners who don’t take the step to separate finances often find themselves with little to show for years of hard work even as they approach retirement. We’ve seen it firsthand: high-earners with impressive firms and almost no investable assets outside their businesses.
The Practical Steps: How to Separate Your Law Firm and Personal Finances
It’s simpler than you might think to create this essential separation. Here’s how to get started:
On the Business Side:
Create a distinct operating checking account for the firm. No personal purchases—ever.
Get a business credit card. Leave your personal Amex for home expenses. Most business cards offer comparable rewards and better record-keeping.
Set up a tax savings account. Use a high-yield savings option to regularly set aside money for quarterly tax payments.
Consider additional accounts for payroll, owner compensation, or retained profits, depending on your firm’s size.
On the Personal Side:
Open a personal checking account and a household emergency fund. Again, use a high-yield account for savings for maximum benefit.
Keep personal credit cards separate—no overlap with the firm.
Use the Right Tools:
Business budgeting: QuickBooks and Wave Apps are popular choices. Keep your business books clean; steer clear of tracking personal expenses here.
Personal budgeting: Monarch Money and YNAB ("You Need A Budget") make it easy to track household cash flow and capture all deductible transactions.
Pro Tip: Banks like Relay (business) and Ally (personal) are user-friendly and popular among firm owners making this transition.
Common Pushbacks and the Real Answers
If you’re hesitating, you might recognize some of these common concerns:
“It’s all my money anyway!”
Actually, your law firm is a business—its funds need to stay separate until you pay yourself a properly structured salary or owner’s draw.
“I need flexibility.”
Mixing finances trades true freedom for confusion and chaos. Structured accounts create predictable income and controlled business operations.
“I don’t make enough to bother.”
No matter your firm’s size, this habit sets the groundwork for growth and makes scaling up much smoother.
“But the rewards on my Amex!”
Points are never worth the cost of chaos, stress, and higher taxes. Get your points on the right card for each side of your finances.
The High Stakes: Real Legal, Tax, and Estate Issues
Mixing money isn’t just a bookkeeping hassle. It can:
Pierce the corporate veil: Exposing your personal assets in lawsuits.
Complicate divorce and estate planning: Making it hard to protect what’s rightfully yours or transfer your business smoothly.
Derail a future sale: Buyers will discount your firm—or walk away—if your books aren’t clean.
Take Action Now: Build Wealth with One Simple Move
Ready to stop the money shuffle? This week, open new accounts if you need them and draw a clear line. Even if you’re starting small, this step will give you immediate clarity and set the stage for every wealth-building strategy that follows.
When you manage your law firm’s finances like a true business, you unlock possibilities for growth, peace of mind, and a richer life both in and out of the office.
Resources:
Connect with Darren Wurz:
Transcript:
Darren Wurz [00:00:00]:
Are you shuffling money back and forth between your personal and business accounts just to make ends meet? Welcome to the Lawyer Millionaire helping law firm owners grow their businesses and their wealth. I'm your host, Darren Wurz. So here's the truth. If your personal and business finances are all mixed together, you're setting yourself up for stress, tax headaches, and constant cash flow confusion. In today's episode, I'm going to show you how to stop the money shuffle with once and for all and why separation is the very first step to clarity. And we've got some great tools coming for you, so stay tuned. All right, friend, before we dive in, just a quick reminder for you. Our Lawyer Millionaire book club is open to you and to all law firm owners just like you.
Darren Wurz [00:00:51]:
It's your chance to learn, grow, and network with other listeners of our show who are ambitious lawyers. And just like you, you can join us@community.lawyermillionaire.com the link is in the show notes. All right, well, here's a statement for you. Your law firm is not your personal piggy bank. Every time you swipe your firm's debit card for groceries or whatever it is, or dip into your personal savings to cover payroll, you are robbing yourself of clarity and sabotaging your financial future. Thank you so much for being here with me, friend. We're talking today about one of the biggest issues that I see for law firm owners, and that is irregular income or cash flow volatility, whatever you call it, it's the ups and downs in cash flow. In fact, this is episode one of a whole series we're gonna do on this topic.
Darren Wurz [00:01:50]:
We're gonna dive in deep, so buckle in. We're gonna talk about it. We're gonna talk about the issues and talk about the sol. There are solutions to your cash flow, no matter what kind of law firm you have, whether that's personal injury or business litigation. We're going to help you get it all sorted, as they say. All right? So, you know, you've probably experienced this yourself. If you are a law firm owner, you have seen it, and I've seen it myself as a business owner. But we need to talk about the foundation of this problem.
Darren Wurz [00:02:25]:
And the foundation of the problem is mixing money without realizing how damaging it is. And that's what we're going to talk about today. Today we're going to talk about the separation of personal and business expenses. Why that's important. Maybe that's a duh for you. But don't snooze on this episode. Because we've got some really cool stuff I'm going to share with you. And let me just give you a quick preview of where we're going with this.
Darren Wurz [00:02:48]:
So in this series we're going to talk about paying yourself a market based wage, a salary, building your emergency fund, the profit first system and simple numbers by Greg Crabtree. I'm going to bring some topics in from that. It's going to be really helpful for you. Sinking funds and tax planning, tracking your cash flow, smart debit and credit card strategies, a profit first system for your household. And we're going to wrap up with the owner's wealth plan. And I've got some. Ooh, I've got some great stuff coming for you. So in future episodes we're going to have a cash flow resource bundle for you.
Darren Wurz [00:03:27]:
I'm still working on putting that together, but I do have my cash flow tools quick list that I'm going to share with you at the end of the episode. So stick around for that. So let's talk about this. Why is this a problem? Well, you know, why is, why do you need to separate your personal and business accounts and finances and why is this a problem? If you are intermingling business and personal finances, are you doing this? By the way, do you have personal expenses on your business accounts? Do you have business expenses on your personal accounts? Are you taking money from the firm willy nilly or putting money back into the firm because you're running short, right? Are you doing that? It's a problem and here's why. Number one, it creates confusion. You're never really going to know what's yours and what belongs to the firm. That makes it really hard to plan on your personal side or on the business side. Can we take that vacation? Can I afford that new hire? Can I sell my business? You're not going to know if there's all this confusion.
Darren Wurz [00:04:29]:
The second thing is that it creates blind spots. You might be profitable, but you might not even know it. Or you might think you're profitable and you might not really be. That is really, really, really a big problem. It's all about health. It's all about financial health. And if you don't have this baseline financial health, you're setting yourself up for all kinds of problems. Another problem is that it creates stress.
Darren Wurz [00:04:52]:
You're creating unnecessary stress for yourself, moving money back and forth in a never ending shuffle. You know, I have had a client like this and we helped him. And I'm going to share with you what exactly we did. And a bigger Even more, you know, difficult problem, maybe not pressing, but it could really be a big problem for you, is if you are sending money back and forth you between your personal and business accounts and you have things mixed together, this could create legal risk for you. And we'll talk about that later. If you're ever audited, if you ever want to sell your practice. And there's some other things that come into play as well. But the bigger problem, my friend, is this.
Darren Wurz [00:05:34]:
You cannot build wealth if you don't know what your numbers are. If you don't have a consistent cash flow system that's working well for you, and you're never going to be able to build wealth. And I have seen this all the time. I see law firm owners that are in their 50s, that are making great money on paper, but it's not translating to real profit and real wealth for them, and their cash flow is a hot mess. You also, you're not going to be able to actually implement some of the systems that we talk about if your finances are all jumbled together. So this is step one, before we do anything, before we do any accounting, before we talk about profit first or simple numbers or anything. If your finances are all jumbled together, you simply can't do it. And even more so, you're not going to be able to enjoy peace of mind if you're constantly wondering, can I afford this? So I promised you a story.
Darren Wurz [00:06:36]:
One of my first law firm owner clients that I ever worked with had a very sizable practice. He was making very good money. But his pressing problem, when he called me, he found me on the Internet, he called me, he said, I'm looking for an advisor. I saw that you specialize in working with law firms. And I was like, this is awesome. Let's talk. And he said, you know, the biggest problem is I don't know where all the money's going. And as we got into it, we started to see he did.
Darren Wurz [00:07:06]:
He had done a good job of separating his personal and business accounts. But the bigger issue was that he was constantly moving money back and forth. He didn't know how much he should be paying himself. And so as a result, you know, when the business was running low, he was sending money back to the business. And when, you know, he needed to buy something for the family or they were running low on the personal side or had a big expense, he was, you know, taking a draw at random from the business. This is a recipe for disaster. And the reason I say that is this particular client was nearing retirement age, but had Almost zero investable retirement assets. And so naturally that means you're going to be working and a very, very high end lifestyle.
Darren Wurz [00:07:57]:
I mean, we're talking about several hundreds of thousands of dollars of expenses annually, right? And so how do you retire? You are going to need some serious money or you're going to be working forever, my friend. So, you know, and that's just not sustainable. And if you're telling yourself it's fine, I'll just work as long as I can, you know, people work till they're 90. Are you. Do you hear yourself? Who wants to do that? Even if you can do it, who wants to be forced to do it? I think that's the bigger thing. Who wants to be in a position where they have to work until they die because they have not built wealth outside of the business? And so with this client, what we did is we dove in deep and we analyzed his cash flow, we helped him set up systems to make it more even. And I'm happy to report this client now has a 75% probability of success in retirement. We've been able to build real wealth for this client and it's tremendous to see.
Darren Wurz [00:09:04]:
And I'm so happy for this client because this client is actually one of the first law firm owner clients that I ever had and was one of the catalysts behind why we started to build the system that we have and the program that we have that is tailored to law firm owners and the struggles that they experience. So let's talk about the specifics. First and foremost, it's very simple, my friend. You're going to set up separate business and personal accounts. On the business side, at a minimum, you're going to need that operating checking account that no personal expenses are coming out of. You're going to need a business credit card. Stop using your personal amex for your business expenses. I know you get points.
Darren Wurz [00:09:50]:
Big whoop dee doo. You can get points on business cards too. And are the points really worth the chaos and confusion and stress and lack of profitability? No. I'm going to tell you that right now. It's not worth it, friend. It really isn't. If you have been putting all kinds of personal expenses on your business cards and vice versa, when you actually separate them out, it's a misconception that we have that we can maintain it all and it's just fine. What difference is it really going to make? I am telling you from personal experience, you are going to experience so much amazing clarity when you separate your personal and business expenses.
Darren Wurz [00:10:32]:
It's going to be unbelievable to you. You're going to say, why did I never do this before? That's something I hear all the time from clients. Why didn't I do this before? You know when they actually start separating things out? Actually, I've heard this from my brother when I told him that he needed to start doing this right. And it made a huge difference for him too. It can make a huge difference for you. You're going to need some other accounts too. It's smart to have a few business accounts. You need a tax account.
Darren Wurz [00:11:02]:
You should not be scrambling every quarter trying to figure out where your money from your estimated tax payments is going to come from. Right there, I said it. You should have a separate tax savings account. It should be a high yield savings account that's getting you at least 4%. And you should be squirreling away money for taxes in that account and then pulling money only from it once a quarter to pay taxes. You also might need a payroll account. You might need a profit account. You might need an owner's compensation account.
Darren Wurz [00:11:32]:
We're going to get into all the different accounts on a future episode. Okay. And on your personal side, you need a personal checking account. You need a household savings or emergency fund. By the way, you also need a business emergency fund. That's important. It's not just personal. You need a business emergency fund and a personal emergency fund.
Darren Wurz [00:11:52]:
And that emergency fund should be in a high yield savings that's getting you at least 4% in today's world. Right. As of this date. Right. Whatever. Interest rates may be different if you listen to this in a future time. Okay? High yield savings. And you need personal credit cards that are separate from from the business.
Darren Wurz [00:12:14]:
Now there's some great banks that you can work with that you know, they'll help you with this. It'll make life easier. I put those together in my cash flow Quick Tools list that I'll share with you later. But I love Relay. I love Relay bank for business banking. It makes it really, really simple. And I love Ally bank for personal banking because they make it really, really simple for personal banking as well. Now, in addition to these accounts, you need separate budgeting systems.
Darren Wurz [00:12:46]:
Now this is why you have to separate these things. Because if you set up on QuickBooks and you have all kinds of personal expenses going on your business cards or you have your QuickBooks is going to be a hot mess. Or if you have business expenses going on your personal accounts, QuickBooks isn't going to capture them. You're going to have no idea what your profitability is, right? So you need separate budgeting systems, QuickBooks or Wave. I like Wave a lot for business Wave apps because it's much more simple and streamlined. QuickBooks is confusing. There's a lot going on. You almost need a specialized training to get to really understand how to use QuickBooks.
Darren Wurz [00:13:26]:
QuickBooks even confuses me, right? So you, you may need something simpler if you're a solo or, you know, you just have one employee. Wave is a great system and there are others as well. And then you need some kind of cash flow tracking on the personal side because you need to be able to capture things. You might miss something when you go to separate expenses. You might miss that Microsoft Office subscription that still is coming off your personal checking account or your personal credit card. So you're going to need to track your personal cash flow. You're going to need to capture those things for taxes that maybe you forgot about that you could deduct, right? So some tools I like are Monarch Money is a really fantastic tool for tracking cash flow personally. And ynab Y N A B you need a budget is a really popular one.
Darren Wurz [00:14:18]:
One of our team members likes that one as well for personal budgeting. Once you have this system, my friend, you're really going to thank me. Never cross use. Never. Don't put groceries on the firm card. No mortgage on the firm account. Don't put your car note on the business expenses unless the car is a business. Assets, we can talk about that.
Darren Wurz [00:14:39]:
And don't cover payroll with your personal money. Keep things separate. And that's step one. And step two then is paying yourself a consistent salary. And we're going to talk more about that on the next episode. But these things build on each other. And when you do these things, you're going to start experiencing greater profitability because you're going to have greater clarity. It just happens.
Darren Wurz [00:15:05]:
By the way, if this feels like your reality, if this is something that you're struggling with, constantly shuffling money back and forth and never feeling in control, let's fix it. You know, we work exclusively with law firm owners just like you to create financial systems that bring order and predictability. And this is one of the most foundational ones. So if you need some help, book a call with me today. There's a link in the show Notes where you can do that, or just go to lawyermillionaire.com and click get started and let's build you a plan that works. But on this topic, let's go a little bit deeper. You know, there's Some common pushback that I get from, you know, separating personal business and all this nonsense, right? One of the first pushback things I hear is, but Darren, it's my money anyway, right? Shouldn't I be able to take it if I need it? And the answer is no. Your firm is a financial engine.
Darren Wurz [00:16:02]:
You are its owner, not its atm. When you're stealing money from the firm, you are taking gas from the engine. You're robbing the engine of fuel it needs to run. So no, it's not all your money. It's not all your money until it hits your bank account. Now, I know if you're an llc, right, it's all flow through and you're going to get taxed on it anyway, right? But it's not all your money. As soon as you make it, treat it that way. Treat it as the firm's money, think about it as the firm's money and my money and keep them separate in your head.
Darren Wurz [00:16:39]:
Another pushback I hear commonly is, but I need flexibility. Well, flexibility, another word for that is chaos and structure, although sometimes we don't like it, is what really yields freedom. When you have separate cash flow systems for your business and for your personal life, your personal life is going to experience a new kind of freedom, people, because you're like, hey, I'm going to get paid. I don't have to take money from the firm. I'm going to automatically get paid from the business. Amazing. When your business is separate, it's going to experience a new level of freedom. If the roof needs to be fixed on my house, it's not going to affect the business.
Darren Wurz [00:17:25]:
The business is just running. It's doing its thing. It's a machine, right? So that flexibility is a misconception. Another pushback sometimes I hear is I don't make enough money yet. You do. Even if you don't make hardly anything, you do. And you need start from the very beginning. It doesn't matter how much you make, you can still keep things separate.
Darren Wurz [00:17:49]:
You can still keep things in different buckets. It's a mindset shift that we need to go through to start treating our businesses. Start treating your law firm like a real business. And that's what's going to allow it to grow into a wealth building machine. Stop treating it like a lifestyle ATM and treat it like the business that it is. Another pushback I hear often is, but I get rewards on this particular Amex, so I want to use it for all of my expenses. Well, as I said before, points are the points really worth the chaos you're trading in long term clarity and tax clean books for a few airline miles. Is that really worth it? Are those airline miles really going to drive your business forward? If you want rewards, guess what? You can get rewards on a personal card or a business card.
Darren Wurz [00:18:43]:
You can, you can keep them separate and still get a lot of those rewards. Now, I want to dive a little bit deeper here and I want to talk about why this matters even more than you think. And the first thing is legal issues. That's right, friend. If your accounts are commingled, if you're ever audited, sued, or you go through a malpractice review, it looks like you're not respecting the corporate veil. And that can pierce the corporate veil. And you know, a suit for your, you know, your business and personal should be protected. If your business is an llc, it's a limited liability corporation for a reason.
Darren Wurz [00:19:27]:
There's liability protection for your personal life. If somebody sues the business, they can't necessarily make a claim against your personal life, your personal expenses, your personal accounts, your personal assets like your house. But guess what? If you're constantly shifting money or commingling assets and finances, that veil is pierced. And someone can come after your personal assets, potentially. It's a big risk. It's a very, very big risk. So for legal purposes alone, it makes a lot of sense to keep things separate. Another thing is divorce.
Darren Wurz [00:20:04]:
Divorce. I've been through this. Many people have been through this. It's a pain in the butt. And guess what? In a divorce, if you've blurred the lines between business and personal, you're handing your spouse's attorney ammunition to claim more of your firm's value as marital property. Or perhaps to accuse you of hiding income and obfuscating. So now I know you think you'll never go through it, but. Or maybe, maybe it's something that's looming for you, a great reason to get things cleaned up and get things separated.
Darren Wurz [00:20:42]:
A third thing is estate planning. If you die or become incapacitated, your heirs or executor will have to untangle the mess. Mixed accounts make it nearly impossible to separate what belongs to the business, what belongs to the family. And that can lead to all kinds of issues, disputes, delays, unnecessary taxes, etc. There's a lot of problems that can come from that. And something that I love to talk about as well, the future sale of your law firm. You know, you've got to have clean books if you're going to sell your practice. Buyers are not going to take you seriously.
Darren Wurz [00:21:16]:
If your finances are a jumble, and you may think you're more profitable than you are, if your finances are a jumble, you know your finances are. Your financial statements are going to be restated. There's going to be restated statements. They're going to look at them and they're going to say, that's a personal expense. That doesn't count. So it really makes sense to keep things clean and separated. There's a lot of risk in things being jumbled together. So this week, my friend, I want you to separate your finances.
Darren Wurz [00:21:48]:
If you haven't done so already, open a separate business checking account or personal checking account if you don't already have them. Stop the money shuffle. Create a line, a boundary between your firm and your household. Even if you start small, this one step can completely change your relationship with money. When you separate things, you'll finally be able to see your true profitability. Your taxes will become predictable. You'll have peace of mind, knowing exactly what's yours and what belongs to the firm. And you're going to have clarity because you're going to be able to log into your bank or your budgeting system and you're going to know exactly what's what and what's going on.
Darren Wurz [00:22:30]:
And most importantly of all, this is the foundational step to real long term wealth and a business that flourishes. It might seem like, you know, unnecessary hoops that you have to jump through, but. But this is it, friend. This is where you start building real wealth and a business that flourishes and a business that is highly profitable. Start with separating those finances. When you draw clear lines between business and personal, you gain clarity, reduce stress, and set the stage for long term wealth. And this is exactly what we help law firm owners do. And we can help you too, my friend.
Darren Wurz [00:23:11]:
Do you want to take the next step? Well, join our Lawyer Millionaire book club and you can connect with other ambitious law firm owners and get all kinds of great resources, including resources from the books that we're reading or if you're ready for personalized help. Book a call with me today and I'll share with you my cash flow tools Quick list. My list of favorite tools and programs for business and personal cash flow, including some great AI tools that I've tried out. So head on down to the Show Notes. Book some time with me. Let's chat. Now, one last question for you and that is, who is the lawyer millionaire? It's you, friend. It's you.
Darren Wurz [00:23:55]:
Own it and live it. I'm your host, Darren Wurz. Thanks for joining me. I'll see you next time.