Why you need to keep personal debt away from your business
Nine out of ten start-ups last less than two years. This isn’t a fact that should scare you, but it is one that should motivate you.
Good finances are at the heart of any sustainable business. The best way to keep your finances in check is to monitor them closely. You’ll need to account for every penny spent and earned. Resultantly, it’s best to keep your personal debt and business finances separate. Here’s why:
Simplicity: Ensuring accurate accounting
Business accounts need to be accurate. If it gets to the end of the tax year and your accounts aren’t accurate then you could potentially be facing a huge fine from HMRC. As such, it is vital that you know everything there is to know about all of your business expenses, incomings and outgoings.
The best way to do this is to keep your business and your personal account separate. That way, it’s much more difficult to make mistakes.
It may sound simplistic, but a ring binder can be used to ensure this is the case. Simply add all of your receipts and invoices to the binder when you receive them and update your spreadsheets periodically. That way, when the time comes to complete your tax return, it should be a straightforward process.
Eliminating risk: Clearing personal debt
If you’re worried that your personal debt may be impacting upon the way your business is run, then take a pause.
It’s tempting to withdraw money from business accounts to cover personal debt, but this should NEVER be done. There are a number of different legal and tax implications and it could compromise your cash flow, plunging your business into countless issues and risking its future.
Instead of trying to withdraw cash from your business (which will also cause countless headaches in your annual tax return), take time to work out your finances and ensure they stay completely spate from your business finances. Even if you struggle to get credit, you can consider the benefits of a guarantor loan, and ask someone to guarantee the loan on your behalf. This way, you can ensure that your business finances are left entirely alone, without the need to dig into the company coughers.
Although it can be tempting to mix company and personal finances, it should never be done. Follow the above advice and you should ensure that personal debt problems never impact on your business.
