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

If you’re beginning to establish your business The temptation to operate through your personal savings account in the bank, or bang some inventory on your personal credit card, is easy to fall for. In actuality, we’ve heard of businesses who funded the beginning of their business using a credit card or the founder’s redrawing their mortgage.

Over the long-term, however there are big benefits to be gained by making sure your financial affairs are distinct from your business finances. The proliferation of new sources of financing for small-sized businesses is making it simpler than ever before to separate your finances.

Here are some of the benefits of keeping your company and personal finances distinct:

1. It could be tax efficient

From a tax perspective, mixing business and personal finances can get tricky.

There aren’t any tax deductions for personal expenses; you only get deductions for business expenses.

You could be adding unnecessary compliance costs if you accountant needs to divide the tax deductions and what’s not. It’s therefore important to keep receipts and documents.

2. A better understanding of company performance

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

When you mix personal belongings with business it usually gives you the wrong impression of what the business’s performance is.

It is vital to set aside the time to organize your businessand to regularly take a break from your day-to-day activities to keep an focus on profit as well as cash flows.

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

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

But you really need advice for setting it up correctly. Speak to a lawyer financial advisor, or accountant about how to arrange and protect equity. The advice you receive will save you several thousand dollars of dollars at in the long run.

Make sure you have the right structure in place before you go into business.

When you’re just starting out in business, be sure to do your homework. This is a substantial investment. It is not a good idea to dump your entire life savings away in order for a savings of a couple bucks initially. Consider the basic due diligence including legal, financial as well as the business itself.

4. Build your credit score

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

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

In the event that you’re buying an asset, a good credit history might allow you to take out loans at lower rates should the need arise.

Get help

With new specialist alternative lenders helping small businesses to obtain finance, now is a great time to consider ways to break the ties between your personal and company finances.

We are able to guide you through the process and help you choose the best options for products and structure for your company as well as personal financial needs.