Max recently decided to take the first step towards self-employment alongside his permanent position. 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 sets up a sole proprietorship for this purpose. In order to get noticed at all, Max first has to reach into his wallet to create his website and place a few advertisements. Of course, the camera and image editing software are not free either. Max has no or very little income yet.
Now he is wondering what all needs to be considered when it comes to bookkeeping. This blog post should answer his and your questions:
Fortunately, the requirements for sole proprietorships with a turnover of less than CHF 500,000 are very manageable. In fact, they are lucky enough to be allowed to keep a so-called Cash-Basis accounting. The Cash-basis method is a very simple income-expense accounting. The following applies:
- All income must be recorded
- As many expenses as possible should be recorded
Expenditures must be related to the business activity. So in our case, advertisements, website maintenance, photo editing software or even the camera itself, should definitely be recorded in the accounting as an expense. The new PlayStation or the vacation in Ibiza (even if a few photos are taken there with the camera) do not belong in the accounting.
In most cases, it is advisable to open a separate business account, and to have all income and expenses strictly run through the new account. This also facilitates the work of the tax authorities. 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, the entry in the commercial register is obligatory according to Art. 957 OR from a turnover of CHF 100,000. However, many entrepreneurs decide to be entered in the commercial register even before this. The entry in the commercial register shows a certain professionalism and authenticity towards future customers.
Registration for value added tax (VAT)
The registration of value added tax is similar to the entry in the commercial register. The registration of VAT is also obligatory from a turnover of CHF 100,000 (Art. 10 MWSTG). Anyone with a turnover 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 with the VAT.
What if the turnover exceeds CHF 500,000?
If the turnover in the last business year exceeds the threshold value of CHF 500,000, the company is obliged to keep accounts according to Art. 931 OR. This means that commercial accounting must be kept. Commercial accounting primarily includes the keeping of a correct balance sheet and income statement.
Keeping the bookkeeping of the sole proprietorship yourself is relatively easy at the beginning. Especially if the turnover is low, the bookkeeping can be done easily by means of the Cash-Basis method. No extraordinary accounting knowledge is needed for this. However, if you have bigger plans for your business, you should start to deal with commercial accounting early enough. It is advisable to consult a fiduciary expert in order to avoid possible compilations in the future.
Max has had great success with his sole proprietorship. He was able to quit his permanent job and now invests all his time in his business and has turned his hobby into his profession.
Do you also want to turn your hobby into a profession and manage your accounting correctly and future-proof? We at Findea will help you!