Why you should keep your business and personal finances separate

If you’re just beginning your journey in business, the temptation to operate through your personal bank account, or perhaps use your personal credit card, is an easy one to fall for. In fact, we’ve all seen businesses funded in those early days by credit card, or the business’s founders redrawing funds from their mortgage.

In the long term, however, there are many benefits to be gained by maintaining your finances separate from your business finances. The proliferation of new funding sources for small businesses are making it much easier than ever before to separate your finances.

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

1. It is efficient in terms of taxation.

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

There aren’t any tax deductions for personal expenditure; you only get deductions for business expenses.

You could be adding unnecessary compliance costs if you accountant must divide the tax deductions and what’s not. Therefore, it’s essential to keep track of receipts and other records.

2. A better understanding of business performance

The most important aspect to running an enterprise is actually identify if the business is actually making a profit.

When you mix personal belongings with business it is often incorrect information about how the business is doing.

It is important to take the time to organize your businessand take a regular 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 properly

You need to protect your family home from creditors, and you can do that through your corporate structure, such as using trusts for family members or companies , which can have separate ownership of your business entities.

But you’ll need some help to set it up properly. Consult a lawyer, financial planner or accountant to discuss the best way to organize and safeguard equity. This advice will save you several thousand dollars at when you’re done.

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

If you are just beginning your business, don’t skimp on your homework. It’s a major investment. It’s not wise to pour your entire life savings away just in order to cut a few bucks in the beginning. Examine the essential due diligence as well as the legal, financial as well as the business itself.

4. Build your credit score

Separating personal finances from business finances and using it to expand your business will also help in building your business’s credit score.

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

In the event that you’re buying an asset, an excellent credit history could enable you to get a loan at a lower rate when the need arises.

Ask for advice

With new specialist alternative lenders helping small-sized businesses to get finance, now is a great time to explore how to untangle your personal and professional financials.

We’re able to help you through the process and offer advice on the best products and structure for your company and personal finances.