Why you must keep your personal and business finances apart

If you’re just beginning your journey in business The temptation to run your business using your own savings account in the bank, or put some money into your personal credit card, is a tempting one to fall for. In fact, we’ve all seen businesses funded in the beginning of their business using a credit card, or the founder redrawing on their mortgage.

Long-term, however, there are many advantages to be gained from keeping your personal finances separate from your business’s finances. The rise of new sources of capital for small businesses makes it much easier than ever before to separate your financials.

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

1. It is tax efficient

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

You generally don’t get tax deductions for personal expenses. it’s only your business expenses.

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

2. A better understanding of the business performance

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

If you mix personal items with the business it can give you the wrong impression of how the business is doing.

It is crucial to take time to oversee your business, and regularly remove yourself from the daily routine to ensure that you keep an the eye on profit and cash flow.

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

You must protect the home of your family from creditors, and you can do it through the structure of your business, for instance, using trusts for family members or companies to have distinct ownership of your companies.

But you’ll need some help to make it work properly. Consult a lawyer, financial advisor, or accountant about how you can organize and safeguard equity. That advice may save you thousands at the end of the day.

Get the structure right before you start your business.

When starting out in business, make sure you do the basics. This is an investment of a large amount. You don’t want to throw your livelihood down the drain because you wanted in order to cut a few bucks at the start. Examine the essential due diligence that includes legal, financial, and even the business itself.

4. Build your credit score

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

This can help when negotiating with creditors or seeking further capital to grow.

If you’re buying an asset, a good credit history might be a benefit to you as you could obtain loans with lower interest rates whenever the need arises.

Receive advice

With the introduction of alternative lenders that specialize in making it easier for small-sized companies to access financing This is the ideal opportunity to think about how you can decouple your personal and business financials.

We are able to guide your through this process, and provide advice on the most suitable products and structures for your business as well as personal financial needs.