As the owner of a business, generally you’ll have a personal vested interest in the finances. But it’s essential to keep your personal finances separate from your business finances, and vice versa. Separate your finances and you can ensure long-term success and growth, but if you don’t maintain a distinct separation then you could face a raft of consequences.

Even when starting out, it’s important to maintain a record of what have been business expenses and what are personal ones. And you should be careful to never blur the line.

Legally, your business is considered a separate entity and there are a number of risks you may face if you mix your finances.

Why keep them separate?

There are two main reasons to ensure your finances are separated – accounting, and ensuring your personal assets are protected.

Accounting

Come tax time, you’ll need to be on top of your business and personal finances, and you’ll need to ensure they’re treated separately. While it’s common for many sole-traders, small business owners and entrepreneurs to pay for business expenses out of personal accounts or personal expenses out of the business account, it’s going to be much more difficult to determine which expense is which when asked.

How will you determine what your profit and expenses are for your business if there is a raft of other transactions attached to that account?

Furthermore, expenses for your business become tax deductions at the conclusion. Come tax time, there is the potential to miss important tax write-offs if the account has personal expenditure tied to it.

Risk to your personal assets

Not drawing a distinction between personal and business finances may even put your personal assets at risk. If there is no difference between you and your business, if someone tries to sue your business, you can be held personally liable and any assets in your name can be caught in the crossfire.

According to ANZ’s Small Business Hub, in the event that your finances are combined, a lawyer can determine that your business is not a separate entity and your personal assets can be repossessed to cover any mistakes made by the business.

How to keep them separated

While it may seem obvious, mixing your business and personal finances can cause a world of trouble. Keep them separate, even if it seems a bit more time consuming, and you’ll find it much easier in the long run.

More information? To find out more, give us a call on 1300 023 782 or email team@cdrta.au.

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