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

When you’re starting out in business The temptation to run your business through your personal financial account (or put some money into your personal credit card is easy to fall for. We’ve all heard of businesses who funded those early days by credit card, or by the founder’s redrawing of their mortgage.

Over the long-term, however there are big benefits to be gained from maintaining your finances distinct from your business’s finances. The proliferation of new funding sources for small businesses makes it easier than ever to separate your financials.

Here are a few benefits of keeping your company and personal finances in a separate manner:

1. It is 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 expenses; it’s just your business expenses.

There’s a chance that you’re adding unnecessary compliance costs if your accountant needs to divide which tax deductions are tax deductible and which not. It’s therefore important to keep receipts and documents.

2. A better understanding of business performance

The most important thing to consider when running an enterprise is be able to determine if the company is actually making a profit.

When you mix personal things with your business, it often gives you a false reading as to how the business is doing.

It is essential to take the time to organize your company, and frequently take a break from your day-to-day activities to make sure you keep an eye on both profit and cash flow.

3. This is an opportunity to establish the business properly

It is essential to safeguard the home of your family from the threat of creditors. You could do that by utilizing your business structure, for example, using trusts for family members or corporations to separate ownership of your business entities.

However, you need help to set it up properly. Talk to a lawyer, financial planner or accountant to discuss how to organize and safeguard equity. It could save you thousands at when you’re done.

Make sure you have the right structure in place before you go into business.

When you’re just starting out in business, be sure to do the basics. It’s a major investment. Don’t throw your entire life savings away simply because you want to save a few bucks when you first started. Take a look at the most fundamental due diligence including legal, financial as well as the business itself.

4. Get your credit score up

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

This can help when negotiating with creditors or when you’re looking for additional capital to expand.

If you’re planning to buy an asset a good credit history might allow you to get a loan at a lower rate in the event of a need.

Get help

With new specialist alternative lenders helping small businesses to access finance Now is the perfect time to explore how to separate your personal and business financials.

We are able to guide clients through the procedure and offer advice on the best options for products and structure for your business and personal finance.