Here's why you need to keep your personal and business finances separate

If you’re beginning to establish your business, the temptation to operate through your personal banking account or perhaps make some purchases on your personal credit card is a tempting one to give in to. In actuality, we’ve been told of companies that funded during the beginning using a credit card or the founder redrawing on their mortgage.

Over the long-term, however there are huge benefits to be gained by maintaining your finances separate from your business finances. The increase in new sources of funding for small businesses has made it easier than ever to separate your finances.

Here are some of the benefits of keeping your business and personal finances distinct:

1. It could be tax efficient

From a tax perspective, mixing business and personal finances can be difficult.

There aren’t any tax deductions for personal expenses. it’s just your business expenses.

You could be adding unnecessary compliance costs if you accountant needs to divide which tax deductions are tax deductible and which not, which is why it’s crucial to keep receipts and documents.

2. A better understanding of the business performance

The main thing you need to do when operating the business you own is identify if the business is actually earning a profit.

When you mix personal items with the business it often gives you incorrect information about what the business’s performance is.

It is vital to set aside the time to organize your businessand to regularly step back from the day-to-day to ensure you keep an an eye on both profit as well as cash flows.

3. This is a chance to get the business up correctly

You need to protect your home from the wrath of creditors. You could do that by utilizing your company structure, like using family trusts or companies , which can have separate ownership of your business entities.

But you’ll need guidance to properly set up your equity. Discuss with a lawyer financial advisor or accountant about the best way to structure and protect equity. This advice will save you several thousand dollars at in the long run.

Get the structure right before you launch your business.

When you’re starting your own business, don’t skimp on the basics. This is a significant investment. It is not a good idea to dump your money away just in order to cut a few dollars initially. Look at the fundamental due diligence that includes legal, financial, as well as the business itself.

4. Improve your credit score

Separating personal finances from business finances and using it to grow your business will aid to improve your company’s credit score.

This is helpful when you’re negotiating with creditors, or when looking for additional capital to expand.

In the event that you’re buying an asset, having a credit score that is good could enable you to borrow at lower interest rates when the need arises.

Receive advice

With new alternative lenders that specialize in that make it easier for small businesses to access finance This is the ideal opportunity to think about how you can break the ties between your personal and company finances.

We are able to guide you through the process, and provide advice on the best products and structure for your company and personal finances.