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

When you’re first starting out in business The temptation to run your business through your personal financial account (or put some money into your credit card at home, is an easy one to fall for. In fact, we’ve all seen businesses funded in in the early days with a credit card, or the founder’s redrawing of their mortgage.

In the long run, however, there are huge benefits to be gained by making sure your financial affairs are distinct from your business’s financials. The proliferation of new funding sources for small businesses has made it easier than ever to keep your finances separate.

Here are a few benefits of keeping your business and personal finances in a separate manner:

1. It could be tax efficient

From a tax perspective, mixing business and personal financial accounts can be a challenge.

Taxes generally do not allow deductions for personal expenses. you only get deductions for business expenses.

There’s a risk of adding unnecessary compliance costs if you accountant needs to divide the tax deductions and what’s not, which is why it’s crucial to keep receipts and documents.

2. A better understanding of company performance

The main thing you need to do when operating an enterprise is discern if the business is actually making money.

If you combine personal items with business it often gives you a false reading as to what the business’s performance is.

It is vital to set aside time to run your business, and regularly get away from the day-to day to ensure you keep an focus on profit as well as cash flows.

3. It’s a great opportunity to set the business up correctly

You have to secure your family home from creditors. You can do that through your company structure, like the use of family trusts or companies , which can have separate ownership of your businesses.

But you’ll need some help to set it up properly. Consult a lawyer, financial planner or accountant to discuss how you can arrange and protect equity. The advice you receive will save you several thousand dollars of dollars at time of need.

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

When you’re just starting out in business, don’t skimp on the basics. It’s a major investment. It’s not wise to pour your money away in order in order to cut a few dollars initially. Look at the fundamental due diligence including legal, financial and even the business itself.

4. Build your credit score

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

This can be helpful in negotiations with creditors, or when looking for more capital to grow.

If you’re planning to buy an asset a good credit history might be a benefit to you as you could obtain loans with lower interest rates should the need arise.

Get help

With the introduction of specialist alternative lenders which make it easier for small businesses to access finance This is the ideal time to consider ways to separate your personal and business financials.

We are able to guide your through this process and advise on the most suitable products and structure for your company and personal finances.