Why you should keep your personal and business finances separate

When you’re starting out in business, the temptation to operate using your own savings account in the bank, or maybe put some money into your credit card at home, is an easy one to fall for. In reality, we’ve all seen businesses funded in during the beginning using a credit card, or the founder’s redrawing of their mortgage.

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

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

1. It may be more tax efficient

From a tax viewpoint the combination of personal and business financial accounts can be a challenge.

There aren’t any tax deductions on personal expenses, you only get deductions for business expenses.

It’s possible to add unnecessary compliance expenses if your accountant has to split up what’s tax deductible and what’s not, which is why it’s crucial to keep receipts and records.

2. A better understanding of company performance

The most important thing to consider when running an enterprise is be able to determine if the company is actually making a profit.

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

It is important to take time to manage your businessand take a regular take a break from your day-to-day activities to keep an an eye on both profit as well as cash flows.

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

You have to secure the home of your family from creditors, and you can do it through the structure of your business, for instance, using trusts for family members or companies that have separate ownership of your business entities.

But you’ll need some help to set it up properly. Speak to a lawyer accountant or financial advisor about the best way to organize and safeguard equity. It may save you thousands of dollars at the end of the day.

Get the structure right before you begin your business.

When starting out in business, don’t skimp on your homework. This is a substantial investment. It is not a good idea to dump your livelihood down the drain just in order to cut a few dollars in the beginning. Take a look at the most fundamental due diligence as well as the legal, financial as well as the business itself.

4. Build your credit score

Separating personal finances from your business’s finances and using it to grow your business will also help in establishing your company’s credit score.

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

If you’re planning to buy an asset an excellent credit history could allow you to obtain loans with lower interest rates in the event of a need.

Get advice

With the introduction of alternative lenders that specialize in helping small businesses to access finance Now is the perfect opportunity to think about how you can separate your personal and business financials.

We are able to guide your through this process, and help you choose the best product and structure for your company and personal finances.