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

When you’re first starting out in business it’s easy to fall prey to operating through your personal banking account or perhaps put some money into your credit card at home, is easy to give in to. In reality, we’ve all known of businesses that were able to fund in the early days with a credit card, or by the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are big benefits to be gained from making sure your financial affairs are separate from your business’s financials. The rise of new sources of capital for small businesses has made it much easier than ever before to separate your financials.

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

1. It may be more tax efficient

From a tax point of view, mixing business and personal financial accounts can be a challenge.

Taxes generally do not allow deductions on personal expenses, it’s your business expenses that count.

You could be adding additional compliance costs that aren’t needed if your accountant needs to divide the tax deductions and what’s not. It’s therefore important to keep records and receipts.

2. A better understanding of the business performance

The key thing for running your own business is to actually determine if your business is actually making a profit.

When you mix personal items with business it can give you an inaccurate picture of how the company is performing.

It is essential to take time to manage your company, and frequently get away from the day-to day to keep an the eye on profit as well as cash flows.

3. This is a chance to get the business up correctly

You need to protect your family home from the wrath of creditors. You could do that by utilizing the structure of your business, for instance, using trusts for family members or corporations to distinct ownership of your companies.

But you’ll need guidance to properly set up your equity. Talk to a lawyer, financial advisor, or accountant about the best way to create and protect equity. This advice will save you several thousand dollars at in the long run.

You must ensure that the structure is in place before you start your business.

If you are just beginning your business, you should not skimp on your research. This is an investment of a large amount. Don’t throw your entire life savings away just in order to cut a few bucks at the start. Take a look at the most fundamental due diligence including legal, financial and the business itself.

4. Create your credit score

Separating personal finances from your business’s finances and using it to grow your business will aid to improve your company’s credit score.

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

If you’re looking to purchase an asset a good credit history might mean you can obtain loans with lower interest rates whenever the need arises.

Ask for advice

With new alternative lenders that specialize in that make it easier for small-sized businesses to get finance This is the ideal time to explore how to decouple your personal and business finances.

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