Why you need to keep your business and personal finances apart

When you’re first starting out in business The temptation to operate out of your personal bank account, or maybe use your personal credit card, is easy to fall for. In fact, we’ve all heard of businesses who funded during the beginning using a credit card, or the founder redrawing on their mortgage.

In the long term, however, there are huge benefits to be gained from taking care to keep your private finances distinct from your business’s finances. The growing number of new sources of financing for small businesses has made it easier than ever to separate your finances.

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 the combination of personal and business financial accounts can be a challenge.

You generally don’t get tax deductions for personal expenditure; you only get deductions for business expenses.

You could be adding unnecessary compliance expenses if your accountant is required to separate the tax deductions and what’s not, which is why it’s crucial to keep receipts and records.

2. A better understanding of company performance

The most important thing to consider when running any business successfully is actually identify if the business is actually making money.

If you mix personal items with the business it can give you a false reading as to what the business’s performance is.

It is crucial to take the time to organize your company, and frequently take a break from your day-to-day activities to ensure you keep an focus on profit as well as cash flows.

3. This is a chance to get the business properly

You have to secure the home of your family from creditors, and you can do it through your company structure, like the use of family trusts or companies that have separate ownership of your entities.

But you really need advice to make it work properly. Talk to a lawyer, financial advisor or accountant about how you can arrange and protect equity. This advice can save thousands at time of need.

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

When starting out in business, you should not skimp on your preparation. This is a substantial investment. Don’t throw your livelihood down the drain in order to make a saving of dollars in the beginning. Examine the essential due diligence that includes legal, financial, and the company itself.

4. Improve your credit score

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

This can help when negotiating with creditors or seeking further capital to grow.

If you’re purchasing an asset, a good credit history might allow you to take out loans at lower rates in the event of a need.

Receive advice

With new alternative lenders that specialize in that make it easier for small-sized businesses to get finance This is the ideal moment to look into ways to separate your personal and business finances.

We can guide your through this process, and advise on the best product and structure for your company and personal finance.