Why you should keep your business and personal finances apart

If you’re beginning to establish your business it’s easy to fall prey to operating from your personal bank account, or maybe make some purchases on your credit card at home, is a tempting one to fall for. We’ve all seen businesses funded in those early days by credit card, or by the founder’s redrawing of their mortgage.

In the long term, however, there are big benefits to be gained from taking care to keep your private finances separate from the business financials. The growing number of new funding sources for small businesses are making it easier than ever to separate your finances.

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

1. It can be more tax efficient.

From a tax viewpoint the combination of personal and business financial accounts can be a challenge.

It is not common to get tax deductions for personal expenditure; it’s your business expenses that count.

There’s a chance that you’re adding additional compliance costs that aren’t needed if your accountant needs to divide the tax-deductible items and what’s not, so it’s important to keep receipts and documents.

2. An understanding of business performance

The key thing for running your own business is to actually discern if the business is actually making money.

If you combine personal items with business it often gives you the wrong impression of how the company is performing.

It is important to take the time to organize your businessand to regularly get away from the day-to day to make sure you keep focus on profit and cash flow.

3. It’s an opportunity to set the business up properly

You need to protect your family home from creditors, and you can do this through your company structure, like the use of family trusts or companies , which can have separate ownership of your businesses.

But you really need advice for setting it up correctly. Consult a lawyer, financial planner or accountant to discuss how you can organize and safeguard equity. The advice you receive could save you thousands at time of need.

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

When starting out in business, don’t skimp on your preparation. This is a substantial investment. Don’t throw your money away just in order to cut a few bucks initially. Take a look at the most fundamental due diligence as well as the legal, financial and even the business itself.

4. Build your credit score

Separating personal finances from your business’s finances and using it to grow your business will also help in building your business’s credit score.

This is helpful when you’re negotiating with creditors or seeking further capital to grow.

In the event that you’re buying an asset, having a strong credit rating could mean you can get a loan at a lower rate when the need arises.

Ask for advice

With new alternative lenders that specialize in making it easier for small businesses to obtain finance It’s the perfect time to explore how to break the ties between your personal and company financials.

We can guide clients through the procedure, and provide advice on the best options for products and structure for your company as well as personal financial needs.