Why you should keep your personal and business finances apart

When you’re starting out in business, the temptation to operate from your personal bank account, or use your credit card at home, is a tempting one to be enticed by. In fact, we’ve all seen businesses funded in those early days by credit card, or the founder’s redrawing their mortgage.

Long-term, however, there are many advantages to be gained from maintaining your finances separate from the business financials. The proliferation of new sources of capital for small-sized businesses is making it much easier than ever before to separate your finances.

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

1. It could be efficient in terms of taxation.

From a tax viewpoint the combination of personal and business finances can be difficult.

It is not common to get tax deductions on personal expenses, it’s only your business expenses.

You could be adding unnecessary compliance costs if you accountant is required to separate what’s tax deductible and what’s not. Therefore, it’s essential to keep receipts and records.

2. A better understanding of the business performance

The key thing for running any business successfully is identify if the business is making a true profit.

If you combine personal things with your business, it usually gives you incorrect information about how the company is performing.

It is important to take time to oversee your company, and frequently remove yourself from the daily routine to keep an the eye on profit and cash flow.

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

You must protect the home of your family from the threat of creditors. You can do that through your corporate structure, such as using family trusts or corporations to separate ownership of your business entities.

But you’ll need guidance for setting it up correctly. Speak to a lawyer financial advisor, or accountant about the best way to arrange and protect equity. That advice will save you several thousand dollars at the end of the day.

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

When starting out in business, make sure you do your homework. This is a significant investment. It is not a good idea to dump your money away in order to make a saving of dollars when you first started. Consider the basic due diligence as well as the legal, financial and the business itself.

4. Improve your credit score

Separating personal finance from your business’s finances and using the latter to build your business will also help in building your business’s credit score.

This can assist in negotiations with creditors or when you’re looking for additional capital to expand.

If you’re planning to buy an asset an excellent credit history could enable you to get a loan at a lower rate whenever the need arises.

Get help

With new alternative lenders that specialize in that make it easier for small businesses to obtain finance This is the ideal time to explore how to separate your personal and business financials.

We’re able to help you through the process, and help you choose the most suitable products and structure for your business as well as personal financial needs.