Why you need to keep your personal and business finances separate

If you’re beginning to establish your business it’s easy to fall prey to operating using your own financial account (or maybe bang some inventory on your personal credit card, is easy to be enticed by. We’ve all known of businesses that were able to fund during the beginning using a credit card, or the founder redrawing on their mortgage.

In the long term, however, there are big benefits to be gained by taking care to keep your private finances distinct from the business financials. The growing number of new sources of financing for small-sized businesses is making it simpler than ever before to keep your finances separate.

Here are some of the benefits of keeping your company and personal finances separate:

1. It can be more efficient in terms of taxation.

From a tax standpoint from a tax perspective, mixing personal and business financial affairs can be tricky.

There aren’t any tax deductions on personal expenses, you only get deductions for business expenses.

It’s possible to add unnecessary compliance expenses if your accountant is required to separate what’s tax deductible and what’s not. It’s therefore important to keep receipts and documents.

2. A better understanding of business performance

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

When you mix your personal items with business it often gives you an inaccurate picture of how the company is performing.

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

3. It’s an opportunity to set the business properly

You have to secure the home of your family from the wrath of creditors. You can do this through your company structure, like using family trusts or companies that have separate ownership of your entities.

But you’ll need some help to make it work properly. Talk to a lawyer, financial advisor or accountant about the best way to organize and safeguard equity. The advice you receive may save you thousands at when you’re done.

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

When starting out in business, be sure to do the basics. This is a substantial investment. It’s not wise to pour your money away in order to make a saving of bucks initially. Take a look at the most fundamental due diligence, financial, legal 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 also help to improve your company’s credit score.

This can be helpful in negotiations with creditors, or when looking for additional capital to expand.

In the event that you’re planning to buy an asset having a strong credit rating could allow you to obtain loans with lower interest rates in the event of a need.

Get help

With new alternative lenders that specialize in that make it easier for small-sized companies to access financing, now is a great moment to look into ways to untangle your personal and professional financials.

We’re able to help clients through the procedure and offer advice on the most suitable products and structure for your company and personal finances.