Why you must keep your personal and business finances separate

If you’re beginning to establish your business The temptation to operate from your personal banking account or perhaps bang some inventory on your credit card at home, is easy to give in to. In fact, we’ve all seen businesses funded in those early days by credit card, or by the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are many benefits to be gained from taking care to keep your private finances distinct from your business’s financials. The rise of new sources of financing for small businesses makes it easier than ever to keep your finances separate.

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

1. It could be tax efficient

From a tax viewpoint from a tax perspective, mixing personal and business finances can be difficult.

Taxes generally do not allow deductions for personal expenses; it’s just your business expenses.

It’s possible to add unnecessary compliance costs if your accountant is required to separate the tax deductions and what’s not, so it’s important to keep records and receipts.

2. A better understanding of business performance

The main thing you need to do when operating an enterprise is actually identify if the business is actually earning a profit.

If you mix personal belongings with business it often gives you the wrong impression of how the business is doing.

It is essential to take time to oversee your company, and frequently remove yourself from the daily routine to ensure you keep an in mind both profits and cash flow.

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

You need to protect your home from creditors, and you can do that through your corporate structure, such as using family trusts or corporations to distinct ownership of your companies.

But you’ll need some help for setting it up correctly. Consult a lawyer, financial planner or accountant to discuss how to create and protect equity. The advice you receive could save you thousands of dollars at time of need.

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

When you’re just starting out in business, make sure you do your research. This is a significant investment. You don’t want to throw your money away because you wanted to save a few dollars when you first started. Consider the basic due diligence including legal, financial and even the business itself.

4. Build your credit score

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

This can assist in negotiations 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 mean you can get a loan at a lower rate when the need arises.

Ask for advice

With new specialist alternative lenders helping small-sized companies to access financing This is the ideal time to explore how to break the ties between your personal and company financials.

We are able to guide you through the process and offer advice on the best options for products and structure for your business and personal finances.