Why you must keep your business and personal finances separate

When you’re first starting out in business The temptation to run your business out of your personal financial account (or make some purchases on your personal credit card is an easy one to fall for. In actuality, we’ve known of businesses that were able to fund the beginning of their business using a credit card, or the business’s founders redrawing funds from their mortgage.

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

Here are some of the benefits of keeping your business and personal finances separate:

1. It can be more efficient in terms of taxation.

From a tax point of view, mixing business and personal finances can be difficult.

Taxes generally do not allow deductions on personal expenses, it’s your business expenses that count.

You could be adding unnecessary compliance costs if you accountant must divide the tax-deductible items and what’s not, which is why it’s crucial to keep receipts and documents.

2. A better understanding of business performance

The most important thing to consider when running any business successfully is actually be able to determine if the company is actually making money.

When you mix personal items with business it is often the wrong impression of what the business’s performance is.

It is vital to set aside the time to organize your business, and regularly remove yourself from the daily routine to make sure you keep in mind both profits and cash flow.

3. This is an opportunity to establish the business up properly

It is essential to safeguard the home of your family from creditors. You can do that through your business structure, for example, making use of family trusts or companies that have separate ownership of your businesses.

But you’ll need some help to properly set up your equity. Talk to a lawyer, financial advisor or accountant about how you can arrange and protect equity. It could save you thousands at time of need.

Get the structure right before you start your business.

When starting out in business, be sure to do your research. This is an investment of a large amount. It is not a good idea to dump your livelihood down the drain because you wanted to save a few dollars initially. Consider the basic due diligence including legal, financial as well as the business itself.

4. Build your credit score

Separating personal finance from business finances and using it to expand your business will aid in building your business’s credit score.

This can help when negotiating with creditors, or when looking for more capital to grow.

In the event that you’re looking to purchase 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 advice

With new specialist alternative lenders which make it easier for small businesses to obtain finance Now is the perfect opportunity to think about how you can decouple your personal and business finances.

We can guide you through the process and advise on the best products and structure for your business and personal finances.