Why you need to keep your personal and business finances apart

When you’re starting out in business The temptation to operate from your personal financial account (or maybe put some money into your credit card at home, is a tempting one to fall for. In reality, we’ve all heard of businesses who funded the beginning of their business using a credit card or the founder’s redrawing their mortgage.

Over the long-term, however there are many advantages to be gained by maintaining your finances distinct from your business’s financials. The growing number of new sources of financing for small businesses has made it much easier than ever before to separate your finances.

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

1. It can be more tax efficient

From a tax point of view the combination of personal and business finances can get tricky.

There aren’t any tax deductions for personal expenditure; it’s just your business expenses.

There’s a chance that you’re adding unnecessary compliance expenses if your accountant needs to divide which tax deductions are tax deductible and which not, which is why it’s crucial to keep track of receipts and other records.

2. An understanding of business performance

The most important thing to consider when running an enterprise is actually identify if the business is actually earning a profit.

When you mix personal items with the business it can give you an inaccurate picture of what the business’s performance is.

It is vital to set aside time to oversee your company, and frequently step back from the day-to-day to make sure you keep focus on profit as well as cash flows.

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

You must protect the home of your family from creditors. You can do this through your corporate structure, such as making use of family trusts or companies to have separate ownership of your business entities.

However, you need help to set it up properly. Discuss with a lawyer financial planner or accountant to discuss the best way to structure and protect equity. That advice can save thousands at in the long run.

Get the structure right before you start your business.

When you’re starting your own business, you should not skimp on your preparation. This is a substantial investment. You don’t want to throw your life savings down the toilet simply because you want to make a saving of bucks in the beginning. Take a look at the most fundamental due diligence including legal, financial and the business itself.

4. Create your credit score

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

This is helpful when you’re negotiating with creditors or looking to raise more capital to help grow.

If you’re purchasing an asset, a good credit history might allow you to borrow at lower interest rates whenever the need arises.

Receive advice

With the introduction of specialist alternative lenders which make it easier for small businesses to access finance It’s the perfect time to explore how to decouple your personal and business financials.

We can help on the way and help you choose the best products and structures for your business as well as personal financial needs.