Why you should keep your business and personal finances separate

If you’re just beginning your journey in business The temptation to operate out of your personal savings account in the bank, or perhaps bang some inventory on your personal credit card, is easy to fall for. We’ve all heard of businesses who funded in the early days with a credit card or the founder’s redrawing of their mortgage.

In the long term, however, there are many benefits to be gained by keeping your personal finances separate from your business’s finances. The rise of new funding sources for small businesses are making it easier than ever to keep your finances separate.

Here are a few benefits of keeping your business and personal finances separate

1. It may be more efficient with respect to taxation.

From a tax point of view, mixing business and personal finances can be difficult.

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

You could be adding unnecessary compliance costs if you accountant is required to separate the tax deductions and what’s not. Therefore, it’s essential to keep track of receipts and other records.

2. A better understanding of business performance

The most important aspect to running your own business is to actually identify if the business is actually making money.

If you combine personal things with your business, it usually gives you an inaccurate picture of how the company is performing.

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

3. This is an opportunity to establish the business up properly

You must protect the home of your family from creditors, and you can do that through your corporate structure, such as making use of family trusts or corporations to distinct ownership of your companies.

But you’ll need some help to set it up properly. Speak to a lawyer financial advisor or accountant about how to create and protect equity. It can save thousands of dollars at when you’re done.

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

If you are just beginning your business, don’t skimp on your preparation. This is a substantial investment. You don’t want to throw your livelihood down the drain in order for a savings of a couple bucks in the beginning. Take a look at the most fundamental due diligence including legal, financial and the business itself.

4. Create your credit score

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

This can assist in negotiations with creditors or seeking further capital to grow.

If you’re planning to buy an asset having a credit score that is good could allow you to borrow at lower interest rates in the event of a need.

Get advice

With new specialist alternative lenders making it easier for small businesses to access finance Now is the perfect time to explore how to break the ties between your personal and company finances.

We can help clients through the procedure, and provide advice on the most suitable products and structures for your business and personal finance.