Why you need to keep your personal and business finances apart

When you’re starting out in business The temptation to run your business using your own savings account in the bank, or perhaps bang some inventory on your personal credit card is a tempting one to give in to. In reality, we’ve all been told of companies that 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 big benefits to be gained by taking care to keep your private finances separate from the business financials. The rise of new sources of funding for small businesses has made it simpler than ever before to keep your finances separate.

Here are some of the benefits of keeping your company and personal finances in a separate manner:

1. It is tax efficient

From a tax standpoint, mixing business and personal financial accounts can be a challenge.

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

It’s possible to add unnecessary compliance expenses if your accountant needs to divide what’s tax deductible and what’s not. It’s therefore important to keep records and receipts.

2. A better understanding of business performance

The most important aspect to running an enterprise is determine if your business is actually making a profit.

When you mix personal things with your business, it often gives you incorrect information about how the company is performing.

It is essential to take time to oversee your business, and regularly get away from the day-to day to keep an the eye on profit as well as cash flows.

3. It’s an opportunity to set your business up properly

You must protect your home from creditors. You can do that through your corporate structure, such as the use of family trusts or companies , which can have distinct ownership of your companies.

But you’ll need some help to properly set up your equity. Talk to a lawyer, financial advisor or accountant about the best way to structure and protect equity. It could save you thousands of dollars 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. This is a significant investment. You don’t want to throw your entire life savings away simply because you want to make a saving of dollars at the start. Examine the essential due diligence that includes legal, financial, as well as the business itself.

4. Improve your credit score

Separating personal finance from business finances and using the latter to expand your business will also help in establishing your company’s credit score.

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

In the event that you’re buying an asset, a good credit history might mean you can take out loans at lower rates in the event of a need.

Get advice

With new specialist alternative lenders which make it easier for small-sized businesses to get finance, now is a great time to explore how to break the ties between your personal and company financials.

We are able to guide on the way, and provide advice on the most suitable products and structure for your business as well as personal financial needs.