Why you must keep your business and personal finances separate

When you’re first starting out in business The temptation to run your business from your personal banking account or maybe bang some inventory on your credit card at home, is easy to fall for. In reality, we’ve all heard of businesses who funded during the beginning using a credit card or the founder’s redrawing their mortgage.

Over the long-term, however there are many benefits to be gained from maintaining your finances distinct from your business finances. The rise of new sources of financing for small businesses are making it simpler than ever before to keep your finances separate.

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

1. It could be tax efficient

From a tax point of view the combination of personal and business financial accounts can be a challenge.

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

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

2. A better understanding of business performance

The most important aspect to running any business successfully is actually identify if the business is making a true profit.

When you mix your personal things with your business, it often gives you a false reading as to how the business is doing.

It is essential to take time to manage your businessand to regularly step back from the day-to-day to ensure you keep an the eye on profit as well as cash flows.

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

You have to secure your family home from the threat of creditors. You can do that through the structure of your business, for instance, the use of family trusts or companies that have separate ownership of your business entities.

But you’ll need some help for setting it up correctly. Consult a lawyer, financial planner or accountant to discuss how you can arrange and protect equity. That advice can save thousands of dollars at when you’re done.

Get the structure right before you go into business.

When starting out in business, you should not skimp on the basics. This is an investment of a large amount. You don’t want to throw your life savings down the toilet just in order to cut a few bucks when you first started. Look at the fundamental due diligence including legal, financial and the company itself.

4. Improve your credit score

Separating personal finances from business finance and using the latter to grow your business will also help in establishing your company’s credit score.

This can be helpful in negotiations with creditors, or when seeking further capital to grow.

If you’re planning to buy an asset having a strong credit rating could enable you to take out loans at lower rates whenever the need arises.

Get advice

With new specialist alternative lenders making it easier for small-sized businesses to get finance, now is a great time to consider ways to untangle your personal and professional financials.

We can help you through the process, and help you choose the best options for products and structure for your company and personal finances.