Why you need to keep your personal and business finances apart

When you’re starting out in business The temptation to operate through your personal banking account or perhaps use your credit card at home, is easy to give in to. In actuality, we’ve seen businesses funded in in the early days with a credit card or the founder redrawing on their mortgage.

In the long run, however, there are huge benefits to be gained by making sure your financial affairs are distinct from your business’s finances. The increase in new sources of capital for small businesses makes it simpler than ever before to separate your financials.

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

1. It may be more efficient with respect to taxation.

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

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

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. Therefore, it’s essential to keep receipts and documents.

2. An understanding of business performance

The most important thing to consider when running your own business is to determine if your business is making a true profit.

When you mix personal items with business it usually gives you a false reading as to how the business is doing.

It is important to take the time to organize your company, and frequently step back from the day-to-day to make sure you keep focus on profit and cash flow.

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

You must protect the home of your family from the wrath of creditors. You could do that by utilizing your corporate structure, such as the use of family trusts or companies to have separate ownership of your business entities.

But you really need advice to properly set up your equity. Discuss with a lawyer accountant or financial advisor about how you can create and protect equity. The advice you receive will save you several thousand dollars at in the long run.

You must ensure that the structure is in place before you begin your business.

When you’re just starting out in business, make sure you do your homework. This is a significant investment. You don’t want to throw your livelihood down the drain just to make a saving of dollars when you first started. Consider the basic due diligence including legal, financial as well as the business itself.

4. Build your credit score

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

This can help when negotiating with creditors or looking for more capital to grow.

In the event that you’re purchasing an asset, having a strong credit rating could mean you can borrow at lower interest rates should the need arise.

Get advice

With new specialist alternative lenders that make it easier for small-sized companies to access financing It’s the perfect time to consider ways to break the ties between your personal and company financials.

We can guide on the way and provide advice on the most suitable products and structure for your company and personal finances.