Here's why you need to keep your personal and business finances separate

When you’re first starting out in business The temptation to run your business out of your personal banking account or perhaps 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 during the beginning using a credit card, or by the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are big benefits to be gained from taking care to keep your private finances separate from your business’s financials. The increase in new funding sources for small businesses are making it easier than ever to keep your finances separate.

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

1. It can be more tax efficient

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

You generally don’t get tax deductions on personal expenses, it’s your business expenses that count.

There’s a risk of adding unnecessary compliance expenses if your accountant must divide the tax-deductible items and what’s not. It’s therefore important to keep records and receipts.

2. A better understanding of the business performance

The most important aspect to running an enterprise is actually be able to determine if the company is making a true profit.

If you mix personal things with your business, it can give you the wrong impression of what the business’s performance is.

It is crucial to take time to manage your company, and frequently step back from the day-to-day to make sure you keep in mind both profits and cash flow.

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

It is essential to safeguard your home from the threat of creditors. You could do that by utilizing your business structure, for example, the use of family trusts or companies to have separate ownership of your businesses.

However, you need help to set it up properly. Talk to a lawyer, accountant or financial advisor about how to create and protect equity. It will save you several thousand dollars of dollars at the end of the day.

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

When starting out in business, don’t skimp on your preparation. This is a substantial investment. It’s not wise to pour your life savings down the toilet just to save a few dollars when you first started. Look at the fundamental due diligence that includes legal, financial, as well as the business itself.

4. Improve your credit score

Separating personal finances from business finance and using it to grow 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 additional capital to expand.

In the event that you’re buying an asset, an excellent credit history could be a benefit to you as you could take out loans at lower rates whenever the need arises.

Get help

With new specialist alternative lenders making it easier for small businesses to access finance, now is a great time to explore how to separate your personal and business financials.

We are able to guide your through this process, and advise on the best options for products and structures for your business as well as personal financial needs.