Here's why you must keep your business and personal finances separate

If you’re beginning to establish your business The temptation to run your business using your own financial account (or make some purchases on your personal credit card, is an easy one to be enticed by. In fact, we’ve all seen businesses funded in those early days by credit card, or by the founder redrawing on their mortgage.

In the long term, however, there are many benefits to be gained from maintaining your finances separate from the business financials. The increase in new sources of funding for small-sized businesses is making it simpler than ever before to separate your finances.

Here are a few advantages of keeping your personal and personal finances distinct:

1. It can be more tax efficient.

From a tax viewpoint when it comes to tax, combining personal and business finances can be difficult.

You generally don’t get tax deductions on personal expenses, it’s just your business expenses.

It’s possible to add unnecessary compliance expenses if your accountant must divide which tax deductions are tax deductible and which not, so it’s important to keep track of receipts and other records.

2. An understanding of business performance

The main thing you need to do when operating your own business is to discern if the business is actually making money.

If you combine personal items with the business it usually gives you the wrong impression of what the business’s performance is.

It is essential to take time to manage your business, and regularly get away from the day-to day to ensure you keep an focus on profit as well as cash flows.

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

You need to protect your family home from creditors. You could do that by utilizing your company structure, like the use of family trusts or companies that have separate ownership of your business entities.

But you’ll need guidance to set it up properly. Speak to a lawyer financial advisor, or accountant about how to organize and safeguard equity. It could save you thousands at time of need.

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

When you’re starting your own business, make sure you do your research. It’s a major investment. You don’t want to throw your entire life savings away simply because you want to make a saving of dollars when you first started. Take a look at the most fundamental due diligence including legal, financial and the business itself.

4. Improve your credit score

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

This can be helpful in negotiations with creditors or when you’re looking for more capital to grow.

In the event that you’re looking to purchase an asset having a credit score that is good could mean you can get a loan at a lower rate when the need arises.

Get help

With the introduction of specialist alternative lenders that make it easier for small-sized businesses to get finance This is the ideal time to explore how to separate your personal and business finances.

We can help you through the process and advise on the best products and structure for your company and personal finance.