Get the Answers: Strive to separate personal expenses from business ones to get ahead

All too often with self-employed people, finances become a mish-mash of business and personal costs. Photo / Thinkstock

For many small businesses, their personal finances are intertwined with their businesses, especially in the early days. They will need to take advice to extricate themselves as time goes on.

We set up our business five years ago, getting the start-up finance from our home. We had paid off two-thirds of our mortgage. Now we are doing reasonably well and would like to refinance.

Generally we would recommend that the business take over your personal mortgage leaving your home debt-free. The amount of mortgage transferred to the business is normally the amount the business owes you - this is shown in your current account balance in the statement of financial position.

The mortgage may still need to be secured against your home, but with only one-third left to pay and your business doing well, this should be paid off quickly if you have the right structure in place. It is important that this is documented correctly from an accounting, tax and legal perspective.

We would like to buy our company premises so that we are not beholden to a landlord. What is the best way of going about this? Could we do this as a second mortgage potentially?

Your approach will depend on a variety of factors including whether the property will make a profit or loss for income tax purposes. If the property is going to make a loss (mortgage interest and property expenses are greater than rental income), you would probably want to have access to the losses for tax purposes and therefore the structures to consider may include a Limited Partnership or if appropriate a "Look Through Company".

If the property is going to be profitable, we would probably recommend a company or a trust own the property. The trick in this instance is to get residential lending rates instead of commercial rates as this can save you a lot in interest every year. To achieve this you may initially need to use your home as security.

Our business is going really well with great sales, but our bank account is not reflecting this. We push a lot of our personal expenses through the business and claim GST. Where are we going wrong?

All too often with self-employed people, finances become a mish-mash of business and personal costs and it prevents most self-employed people getting ahead at the rate they are capable of. It is common for people to try to maximise business costs in a bid to minimise tax.

You need to look at your expenses closely and ask yourself: a) is the expense absolutely necessary and b) is the expense really a business expense or a personal one. Your bank balance is the combination of income less expenses. If your balance is not growing this shows the business is not profitable from a cash perspective. That is the problem that needs to be fixed.

The business has paid my wife to do the accounts and marketing for the past couple of years. Now we can afford to hire someone to do each job. Would it be wise to keep my wife on as a part-time employee?

Shareholder salary is the best method of paying her. The advantage of paying her a shareholder salary is that you can decide what level of income she earns overall. The company would need to prepare a resolution determining how much she would be paid per year before shareholder salary payments begin.

* Hannah McQueen is director of enableMe, financial personal trainers. Her comments are general in nature and she is not responsible for any loss that any reader may suffer from following it.


We want to solve your business problems. From tax headaches to recruitment nightmares - every week, with the help of specialists, we will answer your questions on any topic related to doing business.

Send your questions to Gill at: Southgill1@gmail.com.