Keeping business and personal finances separate
Keeping business and personal finances separate
When you first set up your business it can be easy to just keep all of your finances in one place. However, as your business succeeds and grows you may want to look at securing funding in order to expand your business further, so it makes financial sense to keep everything separate. This will also make things a lot easier when submitting a yearly tax return to HMRC as you can identify business expenditure and income.
If you start of as a sole trader any business debts become your personal debts which could put your important assets (such as your family home) at risk. By becoming a Limited Company, you are making your business into its own legal entity. This can also mean paying yourself dividends from any profits that are made from the business.
It will also provide credibility to your prospective clients as some potential businesses may worry about the impact of IR35 if working with a sole trader.
So, how do you go about ensuring you keep all things business and personal apart? Firstly, set up a Limited Company (as explained above). The next thing is to set up a business bank account, this is required by law. This will function as a proper divide and all cash in and out of the business occurs in the same place and is not mixed up with any personal spending. This will be a lot easier when completing tax returns, claiming back VAT and other accounting requirements.
Use a cloud-based software in conjunction with your accounts, we use Xero with the majority of our clients. This a great system which allows you to track all of your expenses and payments in from anywhere at any time.
Pay yourself a salary from the business, this way you can track a fixed amount on a regular basis whilst building a business pot of cash for the future. This also builds a credible identity which will help with any future investors or funding.
A business credit card can enable you to build up a positive credit history that is only related to the business. It will also ensure you have ready credit available for any emergency purchases without risking your personal finances.
Planning and budgeting for the year ahead is key, by preparing a budget and keeping finances in check this will reduce the risk of running into avoidable costs that could affect your personal finances.
Sorting out the finances of your business will leave you to focus on running your business without worrying about any tax implications in the future.
Sean Daniel, Managing Director said “Keeping your business and personal finances separate is vital to ensure you protect your personal funds are protected and that your business gains credibility.”
If you would like a chat about how you can separate your business and personal finances, please get in touch with the friendly Clear Vision Financial Management team. You can call us on 01794 330025 or email us
