Why you must keep your personal and business finances apart

When you’re starting out in business it’s easy to fall prey to operating out of your personal banking account or maybe bang some inventory on your credit card at home, is an easy one to fall for. In reality, we’ve all seen businesses funded in the beginning of their business using a credit card, or the founder redrawing on their mortgage.

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

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

1. It is tax efficient.

From a tax point of view when it comes to tax, combining personal and business financial affairs can be tricky.

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

There’s a chance that you’re adding unnecessary compliance costs if your accountant has to split up what’s tax deductible and what’s not. It’s therefore important to keep track of receipts and other records.

2. A better understanding of the business performance

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

If you combine personal items with the business it can give you the wrong impression of how the business is doing.

It is important to take time to oversee your business, and regularly take a break from your day-to-day activities to keep an in mind both profits as well as cash flows.

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

It is essential to safeguard your home from the threat of creditors. You can do that through your corporate structure, such as using family trusts or companies that have separate ownership of your businesses.

But you’ll need guidance to properly set up your equity. Speak to a lawyer financial advisor or accountant about the best way to structure and protect equity. This advice will save you several thousand dollars of dollars at time of need.

Get the structure right before you launch your business.

When starting out in business, don’t skimp on your research. This is an investment of a large amount. You don’t want to throw your life savings down the toilet because you wanted for a savings of a couple dollars initially. 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 finances and using it to expand your business will also help to improve your company’s credit score.

This can be helpful in negotiations with creditors or when you’re looking to raise more capital to help grow.

If you’re buying an asset, having a credit score that is good could be a benefit to you as you could take out loans at lower rates should the need arise.

Receive advice

With the introduction of specialist alternative lenders helping small businesses to access finance Now is the perfect moment to look into ways to separate your personal and business financials.

We are able to guide on the way, and provide advice on the most suitable products and structure for your company and personal finance.