Here's why you need to keep your business and personal finances apart

If you’re just beginning your journey in business, the temptation to operate out of your personal bank account, or perhaps bang some inventory on your credit card at home, is easy to give in to. We’ve all seen businesses funded in those early days by credit card or the founder’s redrawing of their mortgage.

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

Here are a few benefits of keeping your company and personal finances separate:

1. It can be more tax efficient

From a tax perspective when it comes to tax, combining personal and business financial accounts can be a challenge.

It is not common to get tax deductions for personal expenses; it’s only your business expenses.

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

2. An understanding of business performance

The key thing for running an enterprise is discern if the business is actually making money.

If you combine personal belongings with business it can give you an inaccurate picture of how the company is performing.

It is vital to set aside time to oversee your businessand take a regular remove yourself from the daily routine to keep an an eye on both profit as well as cash flows.

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

You need to protect the home of your family from creditors, and you can do this through the structure of your business, for instance, the use of family trusts or companies to have separate ownership of your entities.

But you’ll need guidance to make it work properly. Speak to a lawyer financial advisor or accountant about the best way to organize and safeguard equity. It can save thousands of dollars at in the long run.

Make sure you have the right structure in place before you launch your business.

When you’re starting your own business, be sure to do the basics. This is a substantial investment. It is not a good idea to dump your money away because you wanted in order to cut a few dollars in the beginning. Look at the fundamental due diligence including legal, financial and the company itself.

4. Create your credit score

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

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

In the event that you’re buying an asset, an excellent credit history could mean you can borrow at lower interest rates in the event of a need.

Get advice

With the introduction of specialist alternative lenders helping small businesses to access finance This is the ideal time to consider ways to break the ties between your personal and company finances.

We are able to guide clients through the procedure, and provide advice on the most suitable products and structure for your company and personal finances.