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

If you’re beginning to establish your business The temptation to run your business from your personal banking account or perhaps use your personal credit card, is a tempting one to give in to. In reality, we’ve all been told of companies that funded those early days by credit card, or by the founder’s redrawing of their mortgage.

In the long term, however, there are many advantages to be gained by keeping your personal finances separate from your business’s financials. The proliferation of new sources of capital for small businesses makes it simpler than ever before to keep your finances separate.

Here are some of the benefits of keeping your company and personal finances separate:

1. It can be more tax efficient

From a tax standpoint from a tax perspective, mixing personal and business financial accounts can be a challenge.

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

You could be adding unnecessary compliance costs if your accountant is required to separate the tax deductions and what’s not, so it’s important to keep records and receipts.

2. A better understanding of business performance

The key thing for running your own business is to be able to determine if the company is making a true profit.

When you mix your personal things with your business, it often gives you an inaccurate picture of how the business is doing.

It is crucial to take the time to organize your businessand to regularly step back from the day-to-day to make sure you keep in mind both profits 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 threat of creditors. You can do it through your business structure, for example, making use of family trusts or companies that have separate ownership of your businesses.

But you’ll need guidance for setting it up correctly. Discuss with a lawyer financial planner or accountant to discuss how you can arrange and protect equity. That advice may save you thousands of dollars at when you’re done.

Make sure you have the right structure in place before you start your business.

If you are just beginning your business, make sure you do the basics. It’s a major investment. Don’t throw your livelihood down the drain simply because you want to make a saving of dollars at the start. Consider the basic due diligence, financial, legal and the business itself.

4. Improve your credit score

Separating personal finance from business finances and using the latter to build your business will also help in establishing your company’s credit score.

This can assist in negotiations with creditors, or when looking for more capital to grow.

If you’re buying an asset, an excellent credit history could allow you to get a loan at a lower rate in the event of a need.

Ask for advice

With new specialist alternative lenders making it easier for small-sized companies to access financing Now is the perfect time to explore how to separate your personal and business finances.

We can guide clients through the procedure and offer advice on the most suitable products and structures for your business and personal finances.