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

If you’re just beginning your journey in business The temptation to operate out of your personal banking account or maybe put some money into your personal credit card is a tempting one to fall for. We’ve all known of businesses that were able to fund in the early days with a credit card, or the founder’s redrawing their mortgage.

Over the long-term, however there are many advantages to be gained by keeping your personal finances distinct from your business finances. The rise of new sources of financing for small businesses makes it simpler than ever before to keep your finances separate.

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

1. It can be more tax efficient.

From a tax point of view from a tax perspective, mixing personal and business financial affairs can be tricky.

Taxes generally do not allow deductions for personal expenditure; it’s only your business expenses.

There’s a risk of adding unnecessary compliance costs if your accountant is required to separate the tax deductions and what’s not, so it’s important to keep receipts and documents.

2. A better understanding of business performance

The most important thing to consider when running your own business is to identify if the business is making a true profit.

When you mix your personal things with your business, it can give you a false reading as to how the company is performing.

It is vital to set aside time to manage your businessand to regularly step back from the day-to-day to ensure that you keep an the eye on profit as well as cash flows.

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

You need to protect the home of your family from creditors, and you could do that by utilizing your corporate structure, such as the use of family trusts or companies that have separate ownership of your businesses.

But you really need advice to set it up properly. Consult a lawyer, financial advisor, or accountant about how you can organize and safeguard equity. This advice may save you thousands of dollars at when you’re done.

Get the structure right before you start your business.

When starting out in business, don’t skimp on your research. It’s a major investment. It is not a good idea to dump your entire life savings away just to make a saving of dollars when you first started. Look at the fundamental due diligence, financial, legal and even the business itself.

4. Get your credit score up

Separating personal finances from your business’s finances and using it to expand your business will aid in building your company’s credit score.

This can assist in negotiations with creditors or looking for more capital to grow.

If you’re buying an asset, having a strong credit rating could allow you to borrow at lower interest rates whenever the need arises.

Get help

With new specialist alternative lenders helping small-sized companies to access financing It’s the perfect time to explore how to separate your personal and business financials.

We can help clients through the procedure, and help you choose the best options for products and structures for your business and personal finance.