Why you must keep your business and personal finances separate

If you’re beginning to establish your business it’s easy to fall prey to operating through your personal bank account, or maybe bang some inventory on your personal credit card, is easy to give in to. We’ve all been told of companies that funded in the early days with a credit card or the founder redrawing on their mortgage.

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

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

1. It may be more efficient in terms of taxation.

From a tax standpoint, mixing business and personal financial affairs can be tricky.

It is not common to get tax deductions for personal expenses. it’s only your business expenses.

There’s a risk of adding unnecessary compliance expenses if your accountant needs to divide the tax deductions and what’s not, so it’s important to keep track of receipts and other records.

2. An understanding of business performance

The most important aspect to running an enterprise is actually identify if the business is actually making money.

If you mix personal items with business it can give you the wrong impression of how the company is performing.

It is important to take time to oversee your businessand take a regular take a break from your day-to-day activities to ensure you keep an the eye on profit and cash flow.

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

You must protect the home of your family from the wrath of creditors. You can do this through your business structure, for example, using trusts for family members or companies , which can have separate ownership of your businesses.

But you really need advice for setting it up correctly. Consult a lawyer, financial planner or accountant to discuss the best way to create and protect equity. The advice you receive can save thousands of dollars at time of need.

Be sure to have the proper structure in place prior to you go into business.

When starting out in business, don’t skimp on the basics. It’s a major investment. It is not a good idea to dump your money away because you wanted to make a saving of bucks in the beginning. Consider the basic due diligence including legal, financial as well as the business itself.

4. Create your credit score

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

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

If you’re buying an asset, a good credit history might allow you to obtain loans with lower interest rates when the need arises.

Ask for advice

With the introduction of alternative lenders that specialize in making it easier for small businesses to access finance This is the ideal moment to look into ways to break the ties between your personal and company finances.

We are able to guide you through the process and offer advice on the most suitable products and structure for your business and personal finances.