Why you should keep your personal and business finances separate

If you’re beginning to establish your business, the temptation to operate through your personal savings account in the bank, or perhaps use your personal credit card is easy to fall for. We’ve all known of businesses that were able to fund during the beginning using a credit card, or by the founder’s redrawing their mortgage.

In the long term, however, there are big benefits to be gained by making sure your financial affairs are distinct from your business finances. The growing number of new sources of funding for small-sized businesses is making it easier than ever to separate your financials.

Here are some of the benefits of keeping your business and personal finances distinct:

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

From a tax viewpoint when it comes to tax, combining personal and business finances can be difficult.

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

There’s a chance that you’re adding unnecessary compliance expenses if your accountant has to split up what’s tax deductible and what’s not, so it’s important to keep receipts and documents.

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.

When you mix personal belongings with business it often gives 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 an opportunity to establish your business up properly

You need to protect the home of your family from creditors. You could do that by utilizing your corporate structure, such as the use of family trusts or companies to have separate ownership of your business entities.

But you’ll need some help to make it work properly. Discuss with a lawyer financial advisor or accountant about how you can structure and protect equity. It will save you several thousand dollars at in the long run.

Get the structure right before you begin your business.

When you’re starting your own business, make sure you do your research. This is a substantial investment. It’s not wise to pour your livelihood down the drain simply because you want for a savings of a couple dollars at the start. Consider the basic due diligence including legal, financial as well as the business itself.

4. Get your credit score up

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

This can help when negotiating with creditors or when you’re looking for additional capital to expand.

In the event that you’re looking to purchase an asset a good credit history might allow you to obtain loans with lower interest rates when the need arises.

Get advice

With the introduction of alternative lenders that specialize in helping small-sized companies to access financing, now is a great opportunity to think about how you can separate your personal and business finances.

We’re able to help on the way and offer advice on the best products and structures for your business and personal finance.