Why you should keep your business and personal finances apart

When you’re starting out in business The temptation to operate using your own banking account or maybe use your personal credit card, is easy to fall for. We’ve all known of businesses that were able to fund the beginning of their business using a credit card, or the founder redrawing on their mortgage.

In the long term, however, there are huge benefits to be gained by keeping your personal finances distinct from your business’s finances. The growing number of new sources of financing for small businesses makes it easier than ever to separate your financials.

Here are a few advantages of keeping your business and personal finances in a separate manner:

1. It could be tax efficient

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

There aren’t any tax deductions on personal expenses, it’s only your business expenses.

It’s possible to add unnecessary compliance costs if you accountant has to split up the tax-deductible items and what’s not. It’s therefore important to keep receipts and documents.

2. A better understanding of business performance

The most important aspect to running the business you own is actually be able to determine if the company is actually making a profit.

If you combine personal items with the business it can give you incorrect information about how the company is performing.

It is essential to take time to manage your company, and frequently take a break from your day-to-day activities to keep an in mind both profits and cash flow.

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

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

But you’ll need guidance to set it up properly. Consult a lawyer, financial planner or accountant to discuss how to structure and protect equity. It can save thousands at the end of the day.

You must ensure that the structure is in place before you go into business.

When you’re just starting out in business, be sure to do your research. This is a substantial investment. You don’t want to throw your life savings down the toilet just in order to cut a few bucks initially. Look at the fundamental due diligence that includes legal, financial, as well as the business itself.

4. Create your credit score

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

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

If you’re looking to purchase an asset an excellent credit history could be a benefit to you as you could borrow at lower interest rates in the event of a need.

Get help

With new specialist alternative lenders which make it easier for small-sized companies to access financing This is the ideal moment to look into ways to separate your personal and business financials.

We’re able to help clients through the procedure, and help you choose the best products and structure for your company as well as personal financial needs.