A recent report from Suncorp, titled ‘SME vs ME’, found that almost two-thirds of small and medium business owners are mixing personal and business affairs to their own detriment.
Not only does this negatively impact personal wellbeing, it can have catastrophic affects on the business too.
The report found that more than a third of SME owners use personal funds to help with business cash flow, over two-thirds experience personal impact as a result of work stressors, and new business owners (under three years of operation) are less likely to pay themselves superannuation.
According to Suncorp chief executive Gary Dransfield, the statistics show just how many people are putting business success above their personal wellbeing – a concept that doesn’t bode well.
Mingling of business and personal finances can also go the other way, with many SME operators ‘blurring the lines’ by treating the company bank account as their own, risking their personal assets if things go pear shaped.
Some examples of mixing expenses include using the company credit card for personal use, using personal funds to prop up business cash flow, using a leased motor vehicle for strictly private use, and paying for home renovations and school fees through the company.
Engaging in any of these types of activities leaves you wide open for prosecution by the tax man and you run the risk of personal exposure if the business folds.
Mitigating these risks start with ensuring your business is set up as the correct legal entity in the first place.
Establishing the right business structure will provide protection for the business operator and their personal assets.
You also need to ensure your accounts are structured correctly from the outset. Separating your personal and business accounts will give you a clearer snapshot of finances and ensure things don’t get messy.
It will be easier to manage your cash flow and give you an accurate picture of business expenses.
If you’re a business owner and you have been mixing your personal and business finances, it’s not too late to restructure your finances to ensure you’re protected both personally and professionally.
Ensuring your finances and business structure are properly set up and maintained will give you peace of mind and keep your wellbeing in check.
If you’re looking for some advice in this area, speak to your MWM Advisory accountant today.