Why you need to keep your personal and business finances separate

When you’re first starting out in business, the temptation to operate from your personal savings account in the bank, or use your credit card at home, is an easy one to give in to. We’ve all seen businesses funded in in the early days with a credit card or the founder’s redrawing their mortgage.

In the long run, however, there are many benefits to be gained by maintaining your finances separate from your business’s financials. The proliferation of new sources of financing for small businesses makes it simpler than ever before to separate your financials.

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

1. It is efficient with respect to taxation.

From a tax viewpoint from a tax perspective, mixing personal and business financial affairs can be tricky.

It is not common to get tax deductions for personal expenditure; it’s your business expenses that count.

It’s possible to add unnecessary compliance expenses if your accountant has to split up which tax deductions are tax deductible and which not. It’s therefore important to keep receipts and records.

2. A better understanding of business performance

The key thing for running an enterprise is actually discern if the business is actually making a profit.

When you mix personal items with business it is often a false reading as to how the company is performing.

It is essential to take time to run your business, and regularly remove yourself from the daily routine to make sure you keep focus on profit and cash flow.

3. This is an opportunity to establish the business properly

You need to protect the home of your family from creditors. You can do it through the structure of your business, for instance, the use of family trusts or companies that have separate ownership of your business entities.

But you really need advice to make it work properly. Consult a lawyer, financial advisor or accountant about how you can arrange and protect equity. That advice will save you several thousand dollars of dollars at the end of the day.

Get the structure right before you start your business.

When you’re starting your own business, be sure to do the basics. This is a significant investment. You don’t want to throw your entire life savings away simply because you want for a savings of a couple dollars at the start. Look at the fundamental due diligence as well as the legal, financial and the business itself.

4. Build your credit score

Separating personal finances from business finance and using it to build your business will aid in building your company’s credit score.

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

In the event that you’re looking to purchase an asset having a credit score that is good could mean you can get a loan at a lower rate in the event of a need.

Receive advice

With the introduction of specialist alternative lenders that make it easier for small businesses to access finance, now is a great time to consider ways to break the ties between your personal and company finances.

We can guide your through this process, and help you choose the best products and structure for your company and personal finances.