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

If you’re just beginning your journey in business The temptation to run your business using your own savings account in the bank, or maybe use your credit card at home, is an easy one to be enticed by. In reality, we’ve all known of businesses that were able to fund in the early days with a credit card, or the founder redrawing on their mortgage.

In the long term, however, there are huge benefits to be gained from keeping your personal finances distinct from your business’s financials. The rise of new sources of funding for small businesses are making it much easier than ever before to keep your finances separate.

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

1. It can be more tax efficient

From a tax standpoint the combination of personal and business finances can be difficult.

Taxes generally do not allow deductions for personal expenses; you only get deductions for business expenses.

There’s a risk of adding unnecessary compliance costs if you accountant has to split up the tax deductions and what’s not, which is why it’s crucial to keep track of receipts and other records.

2. An understanding of business performance

The key thing for running your own business is to actually determine if your business is actually earning a profit.

If you mix personal items with the business it can give you incorrect information about what the business’s performance is.

It is crucial to take time to run your company, and frequently remove yourself from the daily routine to ensure that you keep an in mind both profits as well as cash flows.

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

You have to secure your family home from the threat of creditors. You can do this through your business structure, for example, making use of family trusts or companies , which can have distinct ownership of your companies.

But you’ll need some help to properly set up your equity. Speak to a lawyer financial planner or accountant to discuss the best way to create and protect equity. That advice could save you thousands of dollars at in the long run.

Get the structure right before you go into business.

When you’re starting your own business, don’t skimp on your research. It’s a major investment. It’s not wise to pour your life savings down the toilet in order to save a few dollars in the beginning. Consider the basic due diligence that includes legal, financial, as well as the business itself.

4. Improve your credit score

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

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

If you’re planning to buy an asset an excellent credit history could mean you can obtain loans with lower interest rates should the need arise.

Get help

With new specialist alternative lenders making it easier for small-sized businesses to get finance It’s the perfect time to consider ways to untangle your personal and professional finances.

We can guide clients through the procedure, and advise on the most suitable products and structure for your business and personal finances.