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

If you’re just beginning your journey in business, the temptation to operate using your own bank account, or perhaps use your personal credit card, is easy to fall for. In fact, we’ve all been told of companies that funded in the early days with a credit card, or by the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are big benefits to be gained by making sure your financial affairs are distinct from your business’s financials. The rise of new sources of funding for small-sized businesses is making it much easier than ever before to separate your financials.

Here are a few benefits of keeping your company and personal finances distinct:

1. It is efficient in terms of taxation.

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

There aren’t any tax deductions for personal expenditure; it’s your business expenses that count.

There’s a chance that you’re adding unnecessary compliance costs if you accountant needs to divide the tax-deductible items and what’s not, so it’s important to keep track of receipts and other records.

2. A better understanding of company performance

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

When you mix personal items with the business it is often the wrong impression of how the company is performing.

It is crucial to take time to oversee your businessand take a regular get away from the day-to day to keep an an eye on both profit and cash flow.

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

It is essential to safeguard the home of your family from the wrath of creditors. You can do this through your corporate structure, such as using family trusts or companies , which can have distinct ownership of your companies.

However, you need help for setting it up correctly. Consult a lawyer, accountant or financial advisor about how to create and protect equity. That advice may save you thousands of dollars at time of need.

Make sure you have the right structure in place before you start your business.

If you are just beginning your business, make sure you do your preparation. This is a significant investment. It is not a good idea to dump your money away in order in order to cut a few dollars at the start. Examine the essential due diligence including legal, financial and the business itself.

4. Build your credit score

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

This can assist in negotiations with creditors, or when looking for additional capital to expand.

If you’re buying an asset, having a strong credit rating could mean you can borrow at lower interest rates when the need arises.

Get advice

With new alternative lenders that specialize in making it easier for small-sized companies to access financing It’s the perfect opportunity to think about how you can decouple your personal and business finances.

We can help you through the process, and advise on the best products and structure for your company and personal finances.