Here's why you must keep your personal and business finances apart

If you’re beginning to establish your business, the temptation to operate out of your personal banking account or perhaps put some money into your personal credit card, is easy to give in to. We’ve all seen businesses funded in the beginning of their business using a credit card or the business’s founders redrawing funds from their mortgage.

Over the long-term, however there are many benefits to be gained by keeping your personal finances distinct from your business finances. The proliferation of new sources of financing for small businesses has made it much easier than ever before to separate your finances.

Here are some of the advantages of keeping your business and personal finances in a separate manner:

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

From a tax perspective when it comes to tax, combining personal and business finances can get tricky.

Taxes generally do not allow deductions for personal expenditure; you only get deductions for business expenses.

There’s a risk of adding additional compliance costs that aren’t needed if your accountant must divide what’s tax deductible and what’s not. Therefore, it’s essential to keep receipts and records.

2. An understanding of business performance

The main thing you need to do when operating your own business is to actually determine if your business is actually making money.

When you mix your personal things with your business, it usually gives you the wrong impression of how the business is doing.

It is important to take time to oversee your business, and regularly take a break from your day-to-day activities to make sure you keep an eye on both profit and cash flow.

3. This is a chance to get your business up properly

It is essential to safeguard your family home from creditors. You can do this through your company structure, like using family trusts or companies that have separate ownership of your businesses.

But you’ll need some help for setting it up correctly. Consult a lawyer, financial planner or accountant to discuss how you can structure and protect equity. The advice you receive can save thousands at when you’re done.

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

When starting out in business, be sure to do your homework. This is a significant investment. It’s not wise to pour your entire life savings away in order to save a few bucks initially. Consider the basic due diligence that includes legal, financial, and the company itself.

4. Improve your credit score

Separating personal finances from your business’s finances and using the latter to expand your business will aid in building your business’s credit score.

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

In the event that you’re planning to buy an asset having a strong credit rating could mean you can borrow at lower interest rates when the need arises.

Get help

With new specialist alternative lenders which make it easier for small-sized businesses to get finance, now is a great moment to look into ways to decouple your personal and business finances.

We are able to guide your through this process and help you choose the best options for products and structures for your business and personal finance.