Why you must keep your business and personal finances apart

When you’re starting out in business The temptation to run your business out of your personal savings account in the bank, or maybe put some money into your credit card at home, is an easy one to be enticed by. In actuality, we’ve been told of companies that funded the beginning of their business using a credit card, or by the founder’s redrawing of their mortgage.

Long-term, however, there are many advantages to be gained from maintaining your finances separate from your business finances. The increase in new sources of capital for small businesses makes it simpler than ever before to separate your financials.

Here are some of the advantages of keeping your personal and personal finances distinct:

1. It is efficient with respect to taxation.

From a tax standpoint the combination of personal and business finances can be difficult.

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

It’s possible to add unnecessary compliance costs if your accountant needs to divide the tax-deductible items and what’s not. It’s therefore important to keep receipts and records.

2. A better understanding of company performance

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

If you combine personal items with business it often gives you the wrong impression of what the business’s performance is.

It is important to take time to manage your company, and frequently remove yourself from the daily routine to ensure that you keep an the eye on profit as well as cash flows.

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

You must protect your family home from the wrath of creditors. You can do that through your business structure, for example, the use of family trusts or companies to have separate ownership of your entities.

But you really need advice to properly set up your equity. Discuss with a lawyer financial planner or accountant to discuss the best way to organize and safeguard equity. It can save thousands at when you’re done.

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

If you are just beginning your business, don’t skimp on the basics. This is a substantial investment. It’s not wise to pour your life savings down the toilet just for a savings of a couple bucks at the start. Examine the essential due diligence that includes legal, financial, as well as the business itself.

4. Get your credit score up

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

This can help when negotiating with creditors or seeking further capital to grow.

If you’re purchasing an asset, having a credit score that is good could enable you to get a loan at a lower rate in the event of a need.

Get advice

With new alternative lenders that specialize in helping small businesses to access finance This is the ideal time to consider ways to break the ties between your personal and company financials.

We can help you through the process, and help you choose the best products and structure for your company and personal finance.