Here's why you must keep your business and personal finances apart

When you’re starting out in business The temptation to run your business using your own savings account in the bank, or maybe bang some inventory on your personal credit card is an easy one to give in to. We’ve all heard of businesses who funded during the beginning using a credit card, or by the founder redrawing on their mortgage.

Over the long-term, however there are many benefits to be gained by making sure your financial affairs are separate from your business finances. The growing number of new sources of capital for small businesses are making it easier than ever to separate your finances.

Here are a few benefits of keeping your business and personal finances separate

1. It can be more efficient with respect to taxation.

From a tax viewpoint from a tax perspective, mixing personal and business financial affairs can be tricky.

There aren’t any tax deductions on personal expenses, it’s your business expenses that count.

There’s a chance that you’re adding unnecessary compliance costs if your accountant must divide which tax deductions are tax deductible and which not, which is why it’s crucial to keep records and receipts.

2. A better understanding of the business performance

The most important aspect to running any business successfully is determine if your business is actually earning a profit.

When you mix your personal things with your business, it is often an inaccurate picture of what the business’s performance is.

It is essential to take the time to organize your business, and regularly step back from the day-to-day to ensure you keep an focus on profit as well as cash flows.

3. This is a chance to get your business up properly

You have to secure your family home from creditors. You could do that by utilizing your business structure, for example, using trusts for family members or companies to have separate ownership of your business entities.

But you’ll need guidance to set it up properly. Discuss with a lawyer financial advisor or accountant about how you can organize and safeguard equity. This advice may save you thousands of dollars at when you’re done.

Get the structure right before you begin your business.

When you’re just starting out in business, you should not skimp on your homework. This is a substantial investment. You don’t want to throw your livelihood down the drain because you wanted for a savings of a couple bucks when you first started. Consider the basic due diligence including legal, financial as well as the business itself.

4. Create your credit score

Separating personal finance from business finances and using it to expand your business will also help in establishing your company’s credit score.

This is helpful when you’re negotiating with creditors or when you’re looking for more capital to grow.

If you’re looking to purchase an asset having a strong credit rating could be a benefit to you as you could take out loans at lower rates should the need arise.

Get help

With the introduction of specialist alternative lenders making it easier for small businesses to access finance Now is the perfect time to explore how to untangle your personal and professional financials.

We are able to guide clients through the procedure, and provide advice on the most suitable products and structures for your business and personal finances.