Here's why you must keep your business and personal finances apart
When you’re first starting out in business The temptation to run your business using your own financial account (or perhaps use your personal credit card is an easy one to give in to. In reality, we’ve all been told of companies that funded the beginning of their business using a credit card, or the founder’s redrawing their mortgage.
In the long term, however, there are big benefits to be gained from keeping your personal finances separate from your business finances. The increase in new sources of capital for small businesses has made it simpler than ever before to separate your financials.
Here are some of the benefits of keeping your company and personal finances distinct:
1. It could be tax efficient.
From a tax point of view the combination of personal and business finances can get tricky.
You generally don’t get tax deductions for personal expenses. it’s just your business expenses.
There’s a risk of adding unnecessary compliance expenses if your accountant needs to divide the tax-deductible items and what’s not. Therefore, it’s essential to keep track of receipts and other records.
2. A better understanding of business performance
The key thing for running an enterprise is discern if the business is actually making a profit.
When you mix personal items with business it can give you a false reading as to what the business’s performance is.
It is important to take time to manage your businessand take a regular take a break from your day-to-day activities to ensure that you keep an an eye on both profit and cash flow.
3. It’s an opportunity to set your business up properly
It is essential to safeguard your home from the wrath of creditors. You can do it through your company structure, like making use of family trusts or corporations to distinct ownership of your companies.
But you’ll need guidance to make it work properly. Speak to a lawyer financial planner or accountant to discuss the best way to structure and protect equity. The advice you receive could save you thousands at in the long run.
You must ensure that the structure is in place before you go into business.
When starting out in business, make sure you do your preparation. This is a substantial investment. Don’t throw your life savings down the toilet because you wanted to save a few bucks in the beginning. Examine the essential due diligence, financial, legal as well as the business itself.
4. Improve your credit score
Separating personal finances from business finance and using the latter to help grow your business can also help in establishing your company’s credit score.
This can be helpful in negotiations with creditors or looking for more capital to grow.
In the event that you’re planning to buy an asset having a strong credit rating could be a benefit to you as you could obtain loans with lower interest rates whenever the need arises.
Get help
With new specialist alternative lenders that make it easier for small-sized businesses to get finance, now is a great time to explore how to break the ties between your personal and company financials.
We can guide your through this process and advise on the best products and structure for your company and personal finances.
