Why you need to keep your personal and business finances apart

When you’re starting out in business, the temptation to operate using your own savings account in the bank, or put some money into your personal credit card, is easy to be enticed by. In reality, we’ve all seen businesses funded in those early days by credit card, or by the founder redrawing on their mortgage.

Long-term, however, there are huge benefits to be gained by keeping your personal finances distinct from your business’s financials. The increase in new sources of funding for small businesses are making it easier than ever to separate your finances.

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

1. It could be efficient in terms of taxation.

From a tax perspective from a tax perspective, mixing personal and business financial affairs can be tricky.

Taxes generally do not allow deductions on personal expenses, it’s only your business expenses.

There’s a chance that you’re adding additional compliance costs that aren’t needed if your accountant needs to divide which tax deductions are tax deductible and which not. It’s therefore important to keep track of receipts and other records.

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 making a true profit.

If you combine personal items with business it can give you a false reading as to what the business’s performance is.

It is essential to take time to oversee your businessand take a regular remove yourself from the daily routine to make sure you keep the eye on profit and cash flow.

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

You must protect your family home from the wrath of creditors. You can do this through your business structure, for example, using family trusts or companies that have separate ownership of your entities.

But you really need advice to make it work properly. Discuss with a lawyer financial planner or accountant to discuss how you can structure and protect equity. That advice may save you thousands of dollars at when you’re done.

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

When you’re just starting out in business, don’t skimp on the basics. It’s a major investment. It is not a good idea to dump your life savings down the toilet simply because you want to make a saving of dollars in the beginning. Take a look at the most fundamental due diligence as well as the legal, financial and even the business itself.

4. Build your credit score

Separating personal finances from business finance and using it to expand your business will aid in establishing your company’s credit score.

This can help when negotiating with creditors or seeking further capital to grow.

If you’re looking to purchase an asset having a credit score that is good could be a benefit to you as you could take out loans at lower rates whenever the need arises.

Receive advice

With new specialist alternative lenders making it easier for small-sized businesses to get finance It’s the perfect time to consider ways to decouple your personal and business financials.

We are able to guide clients through the procedure, and offer advice on the most suitable products and structures for your business as well as personal financial needs.