Why you need to keep your business and personal finances apart

When you’re starting out in business, the temptation to operate through your personal bank account, or maybe bang some inventory on your personal credit card is a tempting one to give in to. In reality, we’ve all been told of companies that funded in the early days with a credit card, or by the founder’s redrawing their mortgage.

In the long term, however, there are many advantages to be gained from maintaining your finances distinct from your business finances. The growing number of new sources of funding for small businesses are making it much easier than ever before to keep your finances separate.

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

1. It is tax efficient.

From a tax standpoint when it comes to tax, combining personal and business finances can be difficult.

There aren’t any tax deductions on personal expenses, it’s only your business expenses.

There’s a risk of adding unnecessary compliance costs if you accountant is required to separate what’s tax deductible and what’s not. It’s therefore important to keep track of receipts and other records.

2. An understanding of business performance

The main thing you need to do when operating any business successfully is identify if the business is actually making money.

When you mix personal things with your business, it is often the wrong impression of what the business’s performance is.

It is essential to take time to oversee your company, and frequently remove yourself from the daily routine to ensure you keep an the eye on profit and cash flow.

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

You must protect your home from the wrath of creditors. You can do that through your business structure, for example, using trusts for family members or companies , which can have separate ownership of your business entities.

But you really need advice to properly set up your equity. Discuss with a lawyer financial planner or accountant to discuss how to structure and protect equity. This advice could save you thousands of dollars at in the long run.

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

When you’re just starting out in business, make sure you do your homework. This is a significant investment. Don’t throw your money away just to save a few bucks when you first started. Consider the basic due diligence that includes legal, financial, and the company itself.

4. Create your credit score

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

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

If you’re buying an asset, having a credit score that is good could mean you can get a loan at a lower rate in the event of a need.

Receive advice

With new alternative lenders that specialize in that make it easier for small businesses to obtain finance This is the ideal time to explore how to untangle your personal and professional finances.

We can help clients through the procedure and provide advice on the best product and structure for your company as well as personal financial needs.