Why you must keep your business and personal finances separate

When you’re first starting out in business it’s easy to fall prey to operating through your personal savings account in the bank, or perhaps use your credit card at home, is easy to fall for. We’ve all been told of companies that funded during the beginning using a credit card or the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are huge benefits to be gained from maintaining your finances distinct from the business financials. The increase in new sources of capital for small businesses makes it much easier than ever before to separate your financials.

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

1. It could be tax efficient

From a tax viewpoint when it comes to tax, combining personal and business financial accounts can be a challenge.

Taxes generally do not allow deductions for personal expenditure; you only get deductions for business expenses.

There’s a risk of adding unnecessary compliance costs if your accountant must divide the tax-deductible items and what’s not, so it’s important to keep records and receipts.

2. A better understanding of the business performance

The main thing you need to do when operating the business you own is actually determine if your business is actually making a profit.

If you mix personal things with your business, it is often an inaccurate picture of how the company is performing.

It is vital to set aside the time to organize your company, and frequently get away from the day-to day to make sure you keep in mind both profits as well as cash flows.

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

You need to protect the home of your family from the threat of creditors. You can do this through the structure of your business, for instance, the use of family trusts or companies , which can have separate ownership of your entities.

But you’ll need some help for setting it up correctly. Talk to a lawyer, financial advisor, or accountant about how you can arrange and protect equity. It will save you several thousand dollars at the end of the day.

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

When you’re starting your own business, you should not skimp on the basics. It’s a major investment. Don’t throw your livelihood down the drain because you wanted for a savings of a couple bucks initially. Look at the fundamental due diligence including legal, financial as well as the business itself.

4. Get your credit score up

Separating personal finance from business finance and using the latter to grow your business will aid in building your business’s credit score.

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

In the event that you’re planning to buy an asset having a strong credit rating could be a benefit to you as you could borrow at lower interest rates should the need arise.

Receive 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 finances.

We can help clients through the procedure and provide advice on the best products and structure for your business and personal finances.