Why you need to keep your personal and business finances apart

If you’re just beginning your journey in business The temptation to operate through your personal financial account (or put some money into your personal credit card, is an easy one to give in to. In reality, we’ve all heard of businesses who funded in the early days with a credit card, or the founder’s redrawing of their mortgage.

Long-term, however, there are huge benefits to be gained from taking care to keep your private finances separate from your business’s finances. The proliferation of new funding sources for small businesses makes it simpler than ever before to separate your finances.

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

1. It is efficient in terms of taxation.

From a tax standpoint when it comes to tax, combining personal and business finances can be difficult.

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

There’s a risk of 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. An understanding of business performance

The most important aspect to running your own business is to be able to determine if the company is actually making money.

When you mix your personal belongings with business it can give you incorrect information about what the business’s performance is.

It is important to take the time to organize your business, and regularly get away from the day-to day to keep an focus on profit and cash flow.

3. This is a chance to get your business up properly

It is essential to safeguard the home of your family from creditors, and you can do that through your company structure, like using family trusts or companies , which can have distinct ownership of your companies.

But you’ll need guidance for setting it up correctly. Discuss with a lawyer financial planner or accountant to discuss how to structure and protect equity. It may save you thousands of dollars at time of need.

Get the structure right before you begin your business.

When starting out in business, make sure you do your preparation. This is a substantial investment. You don’t want to throw your money away because you wanted in order to cut a few dollars at the start. Consider the basic due diligence that includes legal, financial, as well as the business itself.

4. Improve your credit score

Separating personal finance from business finances and using the latter to build 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 more capital to grow.

If you’re planning to buy an asset having a strong credit rating could allow you to borrow at lower interest rates whenever the need arises.

Get advice

With new alternative lenders that specialize in helping small businesses to obtain finance It’s the perfect time to consider ways to untangle your personal and professional financials.

We are able to guide on the way and offer advice on the most suitable products and structures for your business and personal finances.