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

When you’re starting out in business it’s easy to fall prey to operating through your personal financial account (or make some purchases on your personal credit card is a tempting one to fall for. In fact, we’ve all seen businesses funded in during the beginning using a credit card, or the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are huge benefits to be gained by taking care to keep your private finances separate from your business’s financials. The increase in new sources of capital for small businesses makes it easier than ever to keep your finances separate.

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

1. It is tax efficient.

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

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

It’s possible to add unnecessary compliance expenses if your accountant must divide which tax deductions are tax deductible and which not. Therefore, it’s essential to keep receipts and documents.

2. A better understanding of the business performance

The main thing you need to do when operating an enterprise is discern if the business is actually earning a profit.

If you combine personal items with the business it usually gives you an inaccurate picture of how the company is performing.

It is crucial to take time to run your businessand to regularly remove yourself from the daily routine to ensure that you keep an focus on profit and cash flow.

3. This is a chance to get the business properly

You must protect your family home from creditors, and you can do this through your business structure, for example, using trusts for family members or companies , which can have separate ownership of your business entities.

But you really need advice to properly set up your equity. Talk to a lawyer, financial planner or accountant to discuss the best way to structure and protect equity. The advice you receive could save you thousands at time of need.

You must ensure that the structure is in place before you go into business.

When you’re starting your own business, don’t skimp on your homework. This is an investment of a large amount. It is not a good idea to dump your entire life savings away because you wanted to make a saving of dollars at the start. Take a look at the most fundamental due diligence that includes legal, financial, and the company itself.

4. Improve your credit score

Separating personal finance 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 you’re looking to raise more capital to help grow.

If you’re looking to purchase an asset a good credit history might be a benefit to you as you could borrow at lower interest rates should the need arise.

Get help

With the introduction of specialist alternative lenders making it easier for small-sized businesses to get finance, now is a great opportunity to think about how you can break the ties between your personal and company financials.

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