There are two main reasons it is best practice to separate business and personal finances:
- Taxes – one of the biggest reasons to separate business with personal. Through a separate account you are able to keep a close track on expenses, i.e. inventory purchases, operational purchases, office supplies, etc. As a result, all receipts will count when you go to file your taxes. The information you hand to your tax agent will all be relevant to your business, saving you a significant headache.
- Personal Liability – another reason is to reduce the chance of personal liability. Entrepreneurs often use personal guarantees for their lines of credit, loans and leases. While this may be a necessity from time to time, it should be avoided if possible.
If you’re looking to separate your business and personal finances, we’ve put together four simple steps you can take to divide and conquer:
Create A Pty Ltd Company
This will help in protecting your personal assets, so long as it’s been properly set up and maintained. When you have a corporate structure in place, your personal assets won’t get tied up in the company’s lawsuits, losses, and debts.
Set Up A Business Bank Account
After you’ve decided to create a business, you need to set up a business account at a bank in your location.
Obtain a Business Credit Card
A business credit card is a simple way to start building your business credit. Along with the perks that come with establishing your company’s credit history, the credit card can reduce your dependence on personal credit cards for business reasons. You can also deduct the card costs, including
interest and annual fees if it’s used primarily for business expenses. Keep in mind you can’t do this if you mix business and personal expenses on the card.
Come Up With A Budget
Once you’ve established a business bank account and business credit card, it’s time to utilise them within a budget. If you’re looking to grow your business, FundingPro can advise you on the best loan to suit your financial circumstances.
From time to time a business owner may be faced with a circumstance that demands they use their personal finances to help their business – you can’t always avoid it. However, with the above tips, you can ensure the majority of your business and personal finances do not intermix. By doing this, any financial stress your business suffers will have a smaller impact on your personal finances.
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