Why you need to keep your personal and business finances apart

If you’re just beginning your journey in business The temptation to run your business out of your personal financial account (or put some money into your personal credit card is an easy one to be enticed by. In actuality, we’ve been told of companies that funded in the early days with a credit card, or the business’s founders redrawing funds from their mortgage.

In the long term, however, there are big benefits to be gained from making sure your financial affairs are separate from your business’s financials. The proliferation of new funding sources for small-sized businesses is making it easier than ever to keep your finances separate.

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

1. It may be more efficient with respect to taxation.

From a tax point of view when it comes to tax, combining personal and business financial affairs can be tricky.

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

It’s possible to add unnecessary compliance expenses if your accountant must divide the tax deductions and what’s not, so it’s important to keep records and receipts.

2. An understanding of business 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 items with business it can give you a false reading as to what the business’s performance is.

It is crucial to take the time to organize your businessand take a regular remove yourself from the daily routine to make sure you keep an eye on both profit as well as cash flows.

3. This is an opportunity to establish your business up properly

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

But you really need advice for setting it up correctly. Consult a lawyer, financial advisor or accountant about how to organize and safeguard equity. The advice you receive could save you thousands of dollars at the end of the day.

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

When you’re starting your own business, don’t skimp on your homework. This is a significant investment. You don’t want to throw your life savings down the toilet just in order to cut a few bucks when you first started. Examine the essential due diligence including legal, financial as well as the business itself.

4. Build your credit score

Separating personal finances from business finance and using the latter to build your business will aid to improve your company’s credit score.

This can be helpful in negotiations with creditors or when you’re looking to raise more capital to help grow.

If you’re planning to buy an asset having a credit score that is good could mean you can obtain loans with lower interest rates when the need arises.

Get help

With the introduction of specialist alternative lenders helping small-sized businesses to get finance It’s the perfect time to consider ways to break the ties between your personal and company financials.

We can help clients through the procedure and provide advice on the best products and structure for your business and personal finances.