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

When you’re starting out in business it’s easy to fall prey to operating from your personal financial account (or perhaps make some purchases on your personal credit card, is an easy one to be enticed by. In fact, we’ve all known of businesses that were able to fund during the beginning using a credit card, or by the founder’s redrawing of their mortgage.

In the long run, however, there are huge benefits to be gained by making sure your financial affairs are separate from your business’s finances. The rise of new sources of capital for small-sized businesses is making it easier than ever to keep your finances separate.

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

1. It could be efficient in terms of taxation.

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

Taxes generally do not allow deductions for personal expenses; it’s your business expenses that count.

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

2. A better understanding of company performance

The most important thing to consider when running your own business is to actually be able to determine if the company is actually making money.

If you combine personal items with the business it often gives you the wrong impression of what the business’s performance is.

It is crucial to take time to oversee your businessand to regularly get away from the day-to day to make sure you keep in mind both profits and cash flow.

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

You have to secure the home of your family from creditors. You can do it through your company structure, like using trusts for family members or corporations to separate ownership of your entities.

But you really need advice to make it work properly. Discuss with a lawyer financial planner or accountant to discuss the best way to arrange and protect equity. This advice could save you thousands at when you’re done.

Make sure you have the right structure in place before you go into business.

When you’re starting your own business, make sure you do your research. It’s a major investment. Don’t throw your money away in order to make a saving of dollars when you first started. Examine the essential due diligence, financial, legal as well as the business itself.

4. Improve your credit score

Separating personal finances from your business’s finances and using it to help grow your business can also help in building your company’s credit score.

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

In the event that you’re looking to purchase an asset a good credit history might mean you can obtain loans with lower interest rates should the need arise.

Get advice

With new alternative lenders that specialize in which make it easier for small businesses to obtain finance, now is a great time to consider ways to separate your personal and business financials.

We can help clients through the procedure, and help you choose the best products and structure for your business and personal finance.