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

If you’re just beginning your journey in business The temptation to operate from your personal bank account, or maybe put some money into your personal credit card, is an easy one to give in to. We’ve all been told of companies that funded the beginning of their business using a credit card or the business’s founders redrawing funds from their mortgage.

Long-term, however, there are huge benefits to be gained from maintaining your finances distinct from your business’s financials. The rise of new sources of funding for small businesses makes it simpler than ever before to separate your finances.

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

1. It is tax efficient

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

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

There’s a chance that you’re adding unnecessary compliance expenses if your accountant must divide what’s tax deductible and what’s not. Therefore, it’s essential to keep records and receipts.

2. A better understanding of company performance

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

When you mix personal items with the business it is often an inaccurate picture of what the business’s performance is.

It is crucial to take the time to organize your business, and regularly get away from the day-to day to make sure you keep in mind both profits and cash flow.

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

You must protect the home of your family from the threat of creditors. You can do that through your business structure, for example, the use of family trusts or companies , which can have separate ownership of your entities.

But you really need advice for setting it up correctly. Consult a lawyer, financial advisor, or accountant about how to arrange and protect equity. It will save you several thousand dollars of dollars at the end of the day.

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

If you are just beginning your business, you should not skimp on your research. This is a significant investment. It’s not wise to pour your money away simply because you want to save a few bucks initially. Look at the fundamental due diligence as well as the legal, financial and the business itself.

4. Build your credit score

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

This can assist in negotiations with creditors, or when looking to raise more capital to help grow.

In the event that you’re buying an asset, having a strong credit rating could be a benefit to you as you could take out loans at lower rates should the need arise.

Receive advice

With the introduction of specialist alternative lenders making it easier for small businesses to obtain finance Now is the perfect time to consider ways to untangle your personal and professional finances.

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