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

If you’re beginning to establish your business, the temptation to operate using your own bank account, or perhaps bang some inventory on your personal credit card is an easy one to give in to. In fact, we’ve all seen businesses funded in in the early days with a credit card, or by the founder’s redrawing their mortgage.

In the long term, however, there are many advantages to be gained from keeping your personal finances distinct from your business finances. The proliferation of new sources of funding for small-sized businesses is making it much easier than ever before to separate your finances.

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

1. It can be more efficient with respect to taxation.

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

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

It’s possible to add unnecessary compliance costs if your accountant has to split up what’s tax deductible and what’s not, which is why it’s crucial to keep records and receipts.

2. An understanding of business performance

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

When you mix personal things with your business, it often gives you incorrect information about what the business’s performance is.

It is important to take time to run your business, and regularly step back from the day-to-day to keep an focus on profit and cash flow.

3. This is a chance to get your business up properly

You must protect your family home from creditors. You can do this through your company structure, like making use of family trusts or companies , which can have separate ownership of your entities.

However, you need help to properly set up your equity. Consult a lawyer, financial advisor, or accountant about the best way to structure and protect equity. That advice could save you thousands of dollars at time of need.

Be sure to have the proper structure in place prior to you begin your business.

If you are just beginning your business, don’t skimp on your preparation. This is an investment of a large amount. You don’t want to throw your livelihood down the drain in order to save a few dollars initially. Examine the essential due diligence that includes legal, financial, as well as the business itself.

4. Improve your credit score

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

This can help when negotiating with creditors, or when looking for additional capital to expand.

If you’re buying an asset, an excellent credit history could be a benefit to you as you could borrow at lower interest rates whenever the need arises.

Get advice

With new specialist alternative lenders making it easier for small-sized companies to access financing It’s the perfect opportunity to think about how you can separate your personal and business financials.

We can help clients through the procedure, and provide advice on the most suitable products and structure for your business as well as personal financial needs.