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

When you’re first starting out in business it’s easy to fall prey to operating through your personal bank account, or perhaps use your personal credit card, is easy to be enticed by. We’ve all been told of companies that funded those early days by credit card, or the business’s founders redrawing funds from their mortgage.

In the long run, however, there are huge benefits to be gained from keeping your personal finances distinct from your business’s financials. The increase in new sources of funding for small businesses are making it simpler than ever before to separate your finances.

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

1. It could be efficient with respect to taxation.

From a tax perspective from a tax perspective, mixing personal and business finances can be difficult.

It is not common to get tax deductions on personal expenses, it’s your business expenses that count.

There’s a risk of adding unnecessary compliance costs if you accountant must divide which tax deductions are tax deductible and which not, so it’s important to keep receipts and documents.

2. An understanding of business performance

The most important thing to consider when running any business successfully is actually be able to determine if the company is actually earning a profit.

If you mix personal belongings with business it often gives you incorrect information about how the company is performing.

It is essential to take time to manage your company, and frequently remove yourself from the daily routine to ensure you keep an the eye on profit and cash flow.

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

You have to secure your family home from the wrath of creditors. You could do that by utilizing your business structure, for example, using family trusts or corporations to separate ownership of your business entities.

But you’ll need some help to properly set up your equity. Consult a lawyer, financial advisor or accountant about how to structure and protect equity. The advice you receive may save you thousands of dollars at in the long run.

You must ensure that the structure is in place before you start your business.

When you’re starting your own business, don’t skimp on your preparation. This is an investment of a large amount. It is not a good idea to dump your entire life savings away just in order to cut a few dollars at the start. Consider the basic due diligence that includes legal, financial, and the business itself.

4. Get your credit score up

Separating personal finance from business finances and using the latter 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 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 get a loan at a lower rate should the need arise.

Get advice

With new specialist alternative lenders which make it easier for small businesses to obtain finance Now is the perfect time to consider ways to break the ties between your personal and company finances.

We can guide you through the process and offer advice on the best product and structures for your business and personal finance.