Why you should keep your business and personal finances separate

When you’re starting out in business it’s easy to fall prey to operating from your personal bank account, or make some purchases on your personal credit card is a tempting one to be enticed by. In actuality, we’ve been told of companies that funded in the early days with a credit card, or by the founder’s redrawing of their mortgage.

Over the long-term, however there are many benefits to be gained by keeping your personal finances distinct from the business financials. The growing number of new sources of capital for small-sized businesses is making it much easier than ever before to keep your finances separate.

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

1. It could be tax efficient.

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

It is not common to get tax deductions on personal expenses, it’s your business expenses that count.

There’s a chance that you’re adding unnecessary compliance costs if you accountant must divide the tax deductions and what’s not, so it’s important to keep receipts and documents.

2. A better understanding of company performance

The key thing for running an enterprise is be able to determine if the company is actually earning a profit.

If you combine personal items with business it can give you a false reading as to how the business is doing.

It is crucial to take the time to organize your businessand take a regular remove yourself from the daily routine to ensure you keep an an eye on both profit and cash flow.

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

It is essential to safeguard your home from creditors, and you could do that by utilizing your corporate structure, such as using trusts for family members or companies , which can have separate ownership of your businesses.

But you’ll need guidance to set it up properly. Speak to a lawyer financial planner or accountant to discuss how you can structure and protect equity. It can save thousands of dollars at in the long run.

You must ensure that the structure is in place before you go into business.

When you’re just starting out in business, be sure to do your homework. This is a substantial investment. Don’t throw your livelihood down the drain in order to save a few bucks when you first started. Examine the essential due diligence that includes legal, financial, and the business itself.

4. Get your credit score up

Separating personal finances from business finances and using the latter to help grow your business can also help in building your company’s credit score.

This can be helpful in negotiations with creditors or when you’re looking for more capital to grow.

If you’re purchasing an asset, having a strong credit rating could allow you to get a loan at a lower rate whenever the need arises.

Get help

With new alternative lenders that specialize in helping small businesses to access finance, now is a great time to explore how to decouple your personal and business financials.

We’re able to help on the way, and help you choose the best product and structure for your business and personal finance.