Why you must keep your business and personal finances separate

When you’re starting out in business The temptation to operate through your personal banking account or perhaps bang some inventory on your personal credit card, is easy to fall for. We’ve all been told of companies that funded in the early days with a credit card or the founder redrawing on their mortgage.

Long-term, however, there are big benefits to be gained from keeping your personal finances distinct from the business financials. The growing number of new sources of funding for small businesses makes it simpler than ever before to keep your finances separate.

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

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

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

It is not common to get tax deductions for personal expenses. you only get deductions for business expenses.

There’s a risk of adding additional compliance costs that aren’t needed if your accountant has to split up the tax deductions and what’s not, so it’s important to keep track of receipts and other records.

2. A better understanding of company performance

The key thing for running an enterprise is identify if the business is actually earning a profit.

When you mix personal items with business it often gives you the wrong impression of how the business is doing.

It is important to take time to manage your company, and frequently step back from the day-to-day to keep an focus on profit as well as cash flows.

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

You need to protect the home of your family from creditors. You can do that through your business structure, for example, the use of family trusts or corporations to separate ownership of your businesses.

But you’ll need guidance for setting it up correctly. Talk to a lawyer, financial advisor, or accountant about how to create and protect equity. This advice may save you thousands of dollars at time of need.

Get the structure right before you start your business.

When you’re just starting out in business, be sure to do your research. This is a significant investment. It’s not wise to pour your livelihood down the drain because you wanted to make a saving of dollars at the start. Look at the fundamental due diligence, financial, legal and even the business itself.

4. Create your credit score

Separating personal finances from business finances and using the latter 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 seeking further capital to grow.

In the event that you’re purchasing an asset, an excellent credit history could allow you to borrow at lower interest rates should the need arise.

Receive advice

With new alternative lenders that specialize in which make it easier for small businesses to obtain finance Now is the perfect time to explore how to untangle your personal and professional financials.

We are able to guide you through the process, and provide advice on the most suitable products and structures for your business and personal finance.