Here's why you must keep your personal and business finances apart

If you’re just beginning your journey in business, the temptation to operate out of your personal bank account, or maybe use your personal credit card, is a tempting one to give in to. We’ve all heard of businesses who funded during the beginning using a credit card, or by the business’s founders redrawing funds from their mortgage.

In the long run, however, there are many benefits to be gained by taking care to keep your private finances distinct from your business finances. The increase in new sources of capital for small businesses makes it simpler than ever before to separate your finances.

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

1. It is efficient in terms of taxation.

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

It is not common to get tax deductions on personal expenses, you only get deductions for business expenses.

You could be adding unnecessary compliance expenses if your accountant needs to divide which tax deductions are tax deductible and which not, so it’s important to keep track of receipts and other records.

2. A better understanding of business performance

The most important thing to consider when running any business successfully is actually discern if the business is making a true profit.

If you mix personal things with your business, it often gives you incorrect information about what the business’s performance is.

It is vital to set aside time to oversee your company, and frequently step back from the day-to-day to make sure you keep focus on profit as well as cash flows.

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

You need to protect your home from creditors. You could do that by utilizing your corporate structure, such as the use of family trusts or companies , which can have separate ownership of your entities.

But you’ll need some help to properly set up your equity. Speak to a lawyer accountant or financial advisor about how to structure and protect equity. The advice you receive may save you thousands at time of need.

Be sure to have the proper structure in place prior to you launch your business.

When you’re starting your own business, you should not skimp on your preparation. This is a significant investment. Don’t throw your entire life savings away in order for a savings of a couple bucks initially. Take a look at the most fundamental due diligence, financial, legal as well as the business itself.

4. Build your credit score

Separating personal finances from your business’s finances and using it to expand your business will also help in building your company’s credit score.

This can help when negotiating with creditors or looking for more capital to grow.

In the event that you’re buying an asset, having a credit score that is good could mean you can take out loans at lower rates whenever the need arises.

Receive advice

With new specialist alternative lenders helping small-sized companies to access financing It’s the perfect opportunity to think about how you can separate your personal and business financials.

We can guide you through the process and help you choose the best products and structures for your business and personal finance.