Why you should keep your personal and business finances apart

When you’re first starting out in business it’s easy to fall prey to operating out of your personal financial account (or use your credit card at home, is a tempting one to give in to. We’ve all heard of businesses who funded the beginning of their business using a credit card, or by the founder’s redrawing their mortgage.

Over the long-term, however there are many benefits to be gained by making sure your financial affairs are distinct from your business’s financials. The increase in new sources of financing for small businesses are making it much easier than ever before to keep your finances separate.

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

1. It may be more efficient in terms of taxation.

From a tax standpoint from a tax perspective, mixing personal and business finances can be difficult.

There aren’t any tax deductions for personal expenditure; it’s only your business expenses.

There’s a chance that you’re adding unnecessary compliance costs if your accountant needs to divide which tax deductions are tax deductible and which not. It’s therefore important to keep receipts and records.

2. A better understanding of business performance

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

When you mix personal items with the business it can give you an inaccurate picture of what the business’s performance is.

It is vital to set aside the time to organize your businessand to regularly step back from the day-to-day to make sure you keep in mind both profits as well as cash flows.

3. This is an opportunity to establish your business up properly

It is essential to safeguard your home from the threat of creditors. You can do it through the structure of your business, for instance, the use of family trusts or companies to have separate ownership of your entities.

But you’ll need guidance to make it work properly. Talk to a lawyer, financial planner or accountant to discuss the best way to arrange and protect equity. That advice can save thousands of dollars at in the long run.

Make sure you have the right structure in place before you launch your business.

When starting out in business, be sure to do your preparation. This is a substantial investment. It is not a good idea to dump your money away in order to save a few bucks when you first started. Look at the fundamental due diligence as well as the legal, financial and even the business itself.

4. Get your credit score up

Separating personal finances from your business’s finances and using the latter to expand your business will aid in building your company’s credit score.

This can assist in negotiations with creditors or looking for additional capital to expand.

In the event that you’re purchasing an asset, a good credit history might mean you can obtain loans with lower interest rates in the event of a need.

Get help

With new specialist alternative lenders that make it easier for small-sized businesses to get finance Now is the perfect opportunity to think about how you can break the ties between your personal and company finances.

We can help clients through the procedure, and help you choose the best options for products and structure for your business and personal finances.