Why you must keep your business and personal finances apart

When you’re starting out in business The temptation to run your business out of your personal banking account or perhaps put some money into your personal credit card is a tempting one to fall for. In fact, we’ve all heard of businesses who funded in the early days with a credit card, or by the business’s founders redrawing funds from their mortgage.

In the long run, however, there are many advantages to be gained from making sure your financial affairs are distinct from your business finances. The increase in new sources of funding for small businesses makes it easier than ever to separate your financials.

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

1. It can be more tax efficient

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

You generally don’t get tax deductions for personal expenditure; it’s your business expenses that count.

You could be adding additional compliance costs that aren’t needed if your accountant must divide the tax deductions and what’s not. Therefore, it’s essential to keep track of receipts and other records.

2. A better understanding of company performance

The key thing for running your own business is to actually determine if your business is actually making a profit.

When you mix your personal belongings with business it is often an inaccurate picture of how the business is doing.

It is essential to take time to oversee your businessand take a regular step back from the day-to-day to ensure you keep an an eye on both profit and cash flow.

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

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

But you really need advice for setting it up correctly. Speak to a lawyer financial advisor, or accountant about the best way to structure and protect equity. That advice could save you thousands of dollars at the end of the day.

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

When you’re just starting out in business, be sure to do your homework. This is an investment of a large amount. It is not a good idea to dump your money away because you wanted for a savings of a couple bucks when you first started. Look at the fundamental due diligence including legal, financial and even the business itself.

4. Improve your credit score

Separating personal finances from business finances and using the latter to build your business will aid to improve your company’s credit score.

This can be helpful in negotiations with creditors or seeking further capital to grow.

In the event that you’re purchasing an asset, an excellent credit history could mean you can take out loans at lower rates in the event of a need.

Get help

With new alternative lenders that specialize in which make it easier for small businesses to access finance, now is a great time to consider ways to separate your personal and business finances.

We’re able to help your through this process and offer advice on the most suitable products and structure for your business and personal finance.