Accounting when transitioning to self-employment

Max has recently decided to take the first step towards self-employment alongside his full-time job. Max is a passionate photographer and wants to turn his hobby into a profession. He decides to try his luck as a wedding photographer and establishes a sole proprietorship for this purpose. In order to stand out, Max must first reach into his wallet to create his website and run a few advertisements. Of course, the camera and photo editing software are also not free. Max has no income yet or very little.

Now he is wondering what needs to be considered in accounting. This blog post should answer his and your questions:

Milk Book Accounting

Fortunately, the regulations for sole proprietorships with revenues less than CHF 500,000 are quite manageable. They have the advantage of being allowed to keep a so-called "milk book" accounting. The milk book is a very simple income-expenses accounting. The following applies:

·        All income must be recorded

·        As many expenses as possible should be recorded

When it comes to expenses, it should be noted that these must be related to the business activity. In our case, advertising, website maintenance, photo editing software, or even the camera itself must definitely be recorded as expenses in the accounting. The new PlayStation or the vacation in Ibiza (even if a couple of photos are taken with the camera there) do not belong in the accounting.

It is usually advisable to open a separate business account and let all income and expenses strictly go through the new account. This also makes the work easier for the tax authority. Important: all receipts and invoices must be collected.

Entry in the Commercial Register

For many young entrepreneurs, the entry in the commercial register is also a question mark. By law, registration in the commercial register according to Art. 957 CO is mandatory for a revenue of CHF 100,000 and above. However, many entrepreneurs choose to have themselves registered in the commercial register even earlier. An entry in the commercial register shows a certain professionalism and authenticity to future customers.

VAT Registration

Similar to the commercial register entry, the registration of VAT behaves in the same way. The registration of VAT is also mandatory for a revenue of CHF 100,000 (Art. 10 VAT Act) and above. Anyone with a revenue of less than CHF 100,000 is generally exempt from VAT. However, it should be noted that the input tax on expenses can only be reclaimed if one is registered for VAT.

What if the revenue exceeds CHF 500,000?

If the revenue in the last fiscal year has exceeded the threshold of CHF 500,000, the company becomes subject to accounting obligations according to Art. 931 CO. This means that commercial accounting must be maintained. The commercial accounting primarily involves maintaining a correct balance sheet and income statement.

Conclusion

Managing the accounting for a sole proprietorship is relatively easy at the beginning. Particularly when the revenue is low, accounting can be easily handled using the milk book. Extraordinary accounting knowledge is not required for this. However, if one has bigger plans for their company, they should address commercial accounting early enough. It is advisable to consult with a fiduciary expert to avoid potential complications in the future.

Max has achieved great success with his sole proprietorship. He was able to quit his full-time job and now invests all his time in his business and has turned his hobby into a profession.

Do you also want to turn your hobby into a profession and manage accounting correctly and future-proof? We at Findea are here to help you!