Why you must keep your business and personal finances apart

If you’re beginning to establish your business The temptation to operate out of your personal financial account (or maybe put some money into your personal credit card is a tempting one to fall for. In fact, we’ve all known of businesses that were able to fund the beginning of their business using a credit card, or by the founder’s redrawing their mortgage.

In the long run, however, there are many advantages to be gained by keeping your personal finances distinct from the business financials. The rise of new sources of funding for small-sized businesses is making it simpler than ever before to separate your financials.

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

1. It may be more efficient in terms of taxation.

From a tax point of view from a tax perspective, mixing personal and business financial accounts can be a challenge.

You generally don’t get tax deductions for personal expenditure; it’s your business expenses that count.

There’s a risk of adding additional compliance costs that aren’t needed if your accountant is required to separate which tax deductions are tax deductible and which not. It’s therefore important to keep receipts and documents.

2. An understanding of business performance

The main thing you need to do when operating the business you own is actually be able to determine if the company is actually earning a profit.

If you combine personal items with business it usually gives you an inaccurate picture of how the business is doing.

It is essential to take time to run your company, and frequently step back from the day-to-day to keep an focus on profit as well as cash flows.

3. It’s an opportunity to set your business up properly

You must protect your home from the wrath of creditors. You can do that through your business structure, for example, the use of family trusts or corporations to separate ownership of your businesses.

But you really need advice to set it up properly. Talk to a lawyer, financial planner or accountant to discuss how to create and protect equity. That advice can save thousands of dollars at in the long run.

Make sure you have the right structure in place before you begin your business.

If you are just beginning your business, don’t skimp on the basics. It’s a major investment. It’s not wise to pour your money away simply because you want for a savings of a couple bucks at the start. Examine the essential due diligence as well as the legal, financial and the business itself.

4. Get your credit score up

Separating personal finances from business finances and using the latter to grow your business will also help to improve your company’s credit score.

This can be helpful in negotiations with creditors or when you’re looking for additional capital to expand.

If you’re planning to buy an asset a good credit history might be a benefit to you as you could obtain loans with lower interest rates in the event of a need.

Get help

With the introduction of specialist alternative lenders helping small businesses to obtain finance This is the ideal opportunity to think about how you can break the ties between your personal and company financials.

We can guide on the way and advise on the most suitable products and structures for your business as well as personal financial needs.