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

If you’re beginning to establish your business, the temptation to operate from your personal banking account or make some purchases on your personal credit card, is easy to fall for. We’ve all known of businesses that were able to fund during the beginning using a credit card or the founder redrawing on their mortgage.

In the long run, however, there are huge benefits to be gained by keeping your personal finances distinct from your business finances. The rise of new sources of capital for small businesses are making it easier than ever to separate your finances.

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

1. It is efficient with respect to taxation.

From a tax perspective the combination of personal and business financial affairs can be tricky.

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

It’s possible to add unnecessary compliance costs if your accountant is required to separate the tax-deductible items and what’s not, which is why it’s crucial to keep receipts and documents.

2. An understanding of business performance

The main thing you need to do when operating the business you own is determine if your business is actually earning a profit.

When you mix personal items with business it often gives you an inaccurate picture of what the business’s performance is.

It is crucial to take time to manage your business, and regularly get away from the day-to day to make sure you keep the eye on profit as well as cash flows.

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

You need to protect your home from the threat of creditors. You can do it through your corporate structure, such as making use of 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 the best way to structure and protect equity. It can save thousands at time of need.

You must ensure that the structure is in place before you start your business.

When you’re starting your own business, don’t skimp on the basics. It’s a major investment. You don’t want to throw your livelihood down the drain in order to make a saving of dollars when you first started. Look at the fundamental due diligence that includes legal, financial, and even the business itself.

4. Create your credit score

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

This can assist in negotiations with creditors or looking to raise more capital to help grow.

In the event that you’re purchasing an asset, having a credit score that is good could allow you to obtain loans with lower interest rates whenever the need arises.

Get help

With new alternative lenders that specialize in making it easier for small businesses to obtain finance This is the ideal moment to look into ways to untangle your personal and professional financials.

We are able to guide your through this process, and provide advice on the best products and structures for your business and personal finances.