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

If you’re just beginning your journey in business, the temptation to operate out of your personal savings account in the bank, or perhaps bang some inventory on your credit card at home, is easy to fall for. We’ve all heard of businesses who funded those early days by credit card or the founder redrawing on their mortgage.

In the long run, however, there are many benefits to be gained by taking care to keep your private finances separate from your business’s financials. The rise of new funding sources for small businesses has made it simpler than ever before to separate your financials.

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

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

From a tax standpoint, mixing business and personal financial accounts can be a challenge.

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

There’s a risk of adding unnecessary compliance costs if your accountant is required to separate the tax deductions and what’s not. It’s therefore important to keep records and receipts.

2. A better understanding of business performance

The most important thing to consider when running an enterprise is actually determine if your business is making a true profit.

If you combine personal belongings with business it usually gives you incorrect information about what the business’s performance is.

It is vital to set aside time to oversee your business, and regularly take a break from your day-to-day activities to ensure that you keep an an eye on both profit as well as cash flows.

3. This is an opportunity to establish the business up correctly

You need to protect the home of your family from the wrath of creditors. You could do that by utilizing the structure of your business, for instance, using family trusts or corporations to separate ownership of your businesses.

But you’ll need some help for setting it up correctly. Talk to a lawyer, financial advisor or accountant about how to create and protect equity. The advice you receive could save you thousands at when you’re done.

Get the structure right before you begin your business.

When you’re starting your own business, don’t skimp on your preparation. This is an investment of a large amount. Don’t throw your entire life savings away in order to make a saving of dollars in the beginning. Consider the basic due diligence that includes legal, financial, and the company itself.

4. Create your credit score

Separating personal finance from business finances and using the latter to help grow your business can 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.

In the event that you’re looking to purchase an asset an excellent credit history could allow you to take out loans at lower rates in the event of a need.

Get help

With new specialist alternative lenders that make it easier for small-sized companies to access financing Now is the perfect opportunity to think about how you can separate your personal and business finances.

We can help on the way and offer advice on the most suitable products and structure for your business as well as personal financial needs.