Why you should keep your personal and business finances separate

When you’re starting out in business, the temptation to operate out of your personal financial account (or perhaps use your personal credit card is an easy one to fall for. In actuality, we’ve seen businesses funded in during the beginning using a credit card or the founder redrawing on their mortgage.

Over the long-term, however there are huge benefits to be gained by making sure your financial affairs are separate from your business’s finances. The rise of new sources of financing for small businesses are making it easier than ever to separate your finances.

Here are some of the benefits of keeping your company and personal finances in a separate manner:

1. It may be more tax efficient

From a tax perspective, mixing business and personal finances can get tricky.

There aren’t any tax deductions for personal expenses. it’s only your business expenses.

There’s a chance that you’re adding unnecessary compliance costs if you accountant is required to separate which tax deductions are tax deductible and which not, which is why it’s crucial to keep records and receipts.

2. A better understanding of company performance

The main thing you need to do when operating any business successfully is actually discern if the business is making a true profit.

When you mix your personal belongings with business it is often a false reading as to how the company is performing.

It is important to take time to run your company, and frequently get away from the day-to day to keep an focus on profit and cash flow.

3. This is an opportunity to establish the business properly

You need to protect your family home from creditors. You can do that through your business structure, for example, using trusts for family members or companies that have separate ownership of your businesses.

But you really need advice to make it work properly. Discuss with a lawyer financial advisor or accountant about the best way to structure and protect equity. That advice will save you several thousand dollars at when you’re done.

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

When you’re starting your own business, be sure to do your preparation. It’s a major investment. Don’t throw your livelihood down the drain just in order to cut a few dollars when you first started. Consider the basic due diligence, financial, legal and even the business itself.

4. Create your credit score

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

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

If you’re buying an asset, having a strong credit rating could enable you to borrow at lower interest rates whenever the need arises.

Get help

With the introduction of alternative lenders that specialize in which make it easier for small businesses to access finance This is the ideal time to explore how to separate your personal and business financials.

We are able to guide you through the process and provide advice on the best products and structure for your company and personal finance.