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

When you’re starting out in business The temptation to operate out of your personal bank account, or maybe make some purchases on your credit card at home, is a tempting one to be enticed by. In fact, we’ve all heard of businesses who funded in the early days with a credit card, or the business’s founders redrawing funds from their mortgage.

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

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

1. It can be more efficient in terms of taxation.

From a tax standpoint when it comes to tax, combining personal and business finances can get tricky.

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

You could be adding unnecessary compliance costs if your accountant needs to divide the tax-deductible items and what’s not, so it’s important to keep records and receipts.

2. A better understanding of company performance

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

When you mix your personal belongings with business it often gives you the wrong impression of what the business’s performance is.

It is crucial to take time to run your business, and regularly get away from the day-to day to ensure you keep an an eye on both profit and cash flow.

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

You have to secure your family home from the wrath of creditors. You can do that through your company structure, like using trusts for family members or companies that have distinct ownership of your companies.

But you really need advice to properly set up your equity. Speak to a lawyer accountant or financial advisor about how you can create and protect equity. This advice can save thousands at the end of the day.

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 your preparation. This is an investment of a large amount. You don’t want to throw your money away just for a savings of a couple dollars at the start. Consider the basic due diligence including legal, financial and even the business itself.

4. Build your credit score

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

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

In the event that you’re looking to purchase an asset having a strong credit rating could mean you can get a loan at a lower rate whenever the need arises.

Get help

With new specialist alternative lenders helping small businesses to access finance Now is the perfect time to consider ways to decouple your personal and business financials.

We’re able to help you through the process and provide advice on the best products and structure for your business and personal finance.