Why you should keep your business and personal finances apart

When you’re starting out in business it’s easy to fall prey to operating through your personal banking account or perhaps use your credit card at home, is a tempting one to fall for. We’ve all seen businesses funded in the beginning of their business using a credit card, or the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are huge benefits to be gained by maintaining your finances separate from your business’s financials. The growing number of new funding sources for small businesses makes it simpler than ever before to separate your financials.

Here are some of the benefits of keeping your business and personal finances in a separate manner:

1. It is efficient in terms of taxation.

From a tax point of view the combination of personal and business finances can get tricky.

Taxes generally do not allow deductions for personal expenses. it’s only your business expenses.

It’s possible to add unnecessary compliance costs if your accountant is required to separate the tax deductions and what’s 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 your own business is to identify if the business is making a true profit.

When you mix personal belongings with business it usually gives you incorrect information about how the company is performing.

It is crucial to take the time to organize your businessand to regularly take a break from your day-to-day activities to ensure you keep an focus on profit as well as cash flows.

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

It is essential to safeguard your home from the wrath of creditors. You can do it through your business structure, for example, using family trusts or corporations to separate ownership of your businesses.

However, you need help for setting it up correctly. Discuss with a lawyer financial advisor or accountant about how to create and protect equity. It could save you thousands of dollars at in the long run.

Be sure to have the proper structure in place prior to you begin your business.

When starting out in business, you should not skimp on your preparation. This is a significant investment. You don’t want to throw your life savings down the toilet because you wanted in order to cut a few bucks at the start. Look at the fundamental due diligence including legal, financial and the company itself.

4. Get your credit score up

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

This can help when negotiating with creditors, or when looking for additional capital to expand.

In the event that you’re buying an asset, a good credit history might mean you can get a loan at a lower rate whenever the need arises.

Ask for advice

With new specialist alternative lenders helping small businesses to access finance, now is a great moment to look into ways to break the ties between your personal and company financials.

We can help clients through the procedure and offer advice on the best options for products and structures for your business as well as personal financial needs.