Why you should keep your business and personal finances separate

When you’re first starting out in business, the temptation to operate out of your personal banking account or perhaps bang some inventory on your personal credit card is an easy one to fall for. In actuality, we’ve known of businesses that were able to fund 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 many advantages to be gained by making sure your financial affairs are separate from the business financials. The growing number of new sources of capital for small businesses makes it much easier than ever before to separate your finances.

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

1. It could be tax efficient.

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

You generally don’t get tax deductions for personal expenses. it’s only your business expenses.

It’s possible to add unnecessary compliance expenses if your accountant has to split up what’s tax deductible and what’s not, which is why it’s crucial to keep receipts and records.

2. A better understanding of company performance

The main thing you need to do when operating any business successfully is actually determine if your business is making a true profit.

When you mix personal things with your business, it often gives you the wrong impression of how the business is doing.

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

3. This is a chance to get the business properly

It is essential to safeguard your family home from the threat of creditors. You can do that through your company structure, like making use of family trusts or companies that have separate ownership of your business entities.

But you’ll need guidance to make it work properly. Talk to a lawyer, accountant or financial advisor about the best way to organize and safeguard equity. That advice may save you thousands at in the long run.

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

If you are just beginning your business, you should not skimp on the basics. This is an investment of a large amount. Don’t throw your entire life savings away because you wanted for a savings of a couple bucks initially. Examine the essential due diligence including legal, financial and even the business itself.

4. Improve your credit score

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

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

In the event that you’re looking to purchase an asset a good credit history might allow you to borrow at lower interest rates when the need arises.

Receive advice

With the introduction of alternative lenders that specialize in making it easier for small businesses to access finance It’s the perfect time to consider ways to untangle your personal and professional finances.

We can help clients through the procedure and offer advice on the best product and structures for your business as well as personal financial needs.