Why Blending Personal And Business Finances Can Be Costly
Combining personal and business finances is ill-advised due to numerous reasons. Combining your personal and business finances can cause confusion, make it harder to track your business expenses, and create potential legal and tax issues.
Below are a few justifications for why it’s inadvisable to merge your personal and business finances.
Legal Liability: By mixing personal and business finances, you run the risk of being personally liable for any legal issues that arise in your business. Merging personal and business finances may endanger personal assets.
Tax Issues: Tax concerns can arise when you commingle finances since it becomes challenging to differentiate business expenditures from personal ones. This can make it harder to file your taxes accurately and could result in you missing out on valuable tax deductions.
Accounting Confusion: Merging your finances can make it more challenging to monitor your business expenditures and revenue. This can make it harder to create accurate financial statements, which can be problematic if you need to secure financing or if you plan to sell your business in the future.
Lack of Professionalism: Mixing personal and business finances can create the impression that your business is not a separate entity but rather an extension of yourself. This can make it harder to establish your business as a professional entity, which could negatively impact your ability to attract clients or secure financing.
Credit Issues: Combining personal and business finances can also create issues with your personal credit score. If your business has financial problems, this could negatively impact your personal credit score, making it harder for you to secure financing for personal expenses such as a home or car loan.
By maintaining separate accounts, you can ensure that your business remains a professional entity and reduce the risk of damaging your personal finances.