Why you need to keep your business and personal finances apart

If you’re just beginning your journey in business, the temptation to operate through your personal savings account in the bank, or maybe make some purchases on your credit card at home, is easy to give in to. In reality, we’ve all known of businesses that were able to fund during the beginning using a credit card or the business’s founders redrawing funds from their mortgage.

In the long run, however, there are big benefits to be gained by taking care to keep your private finances distinct from the business financials. The rise of new funding sources for small businesses are making it simpler than ever before to separate your financials.

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

1. It may be more tax efficient

From a tax point of view when it comes to tax, combining personal and business financial affairs can be tricky.

It is not common to get tax deductions for personal expenditure; it’s just your business expenses.

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

2. A better understanding of the business performance

The most important aspect to running any business successfully is discern if the business is actually making a profit.

If you mix personal items with business it often gives you a false reading as to what the business’s performance is.

It is essential to take time to manage your business, and 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 an opportunity to establish the business up correctly

You need to protect your home from the threat of creditors. You could do that by utilizing your corporate structure, such as using family trusts or companies , which can have distinct ownership of your companies.

But you’ll need guidance to make it work properly. Consult a lawyer, financial advisor or accountant about how you can create and protect equity. That advice will save you several thousand dollars of dollars at the end of the day.

Get the structure right before you launch your business.

When you’re starting your own business, make sure you do the basics. It’s a major investment. It’s not wise to pour your entire life savings away simply because you want in order to cut a few dollars when you first started. Consider the basic due diligence as well as the legal, financial and the company itself.

4. Build your credit score

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

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

If you’re looking to purchase an asset having a credit score that is good could enable you to borrow at lower interest rates should the need arise.

Receive advice

With the introduction of specialist alternative lenders making it easier for small businesses to access finance This is the ideal time to consider ways to break the ties between your personal and company financials.

We’re able to help you through the process and help you choose the best options for products and structure for your business and personal finances.