Bookkeeping for companies: the most important basics for start-ups

Bookkeeping is the backbone of every business. Especially for new business owners, it is essential to keep track of income and expenses from the very beginning. Proper bookkeeping is not only required by law, it also helps you to evaluate the financial status of your business, make strategic decisions and manage taxes efficiently. Many business owners shy away from it because they believe that bookkeeping is complicated and time-consuming.

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1. What is accounting and why is it important for your business?

Accounting is more than just recording income and expenses. It provides clear insight into your company's financial situation and helps you make informed decisions. Here are some of the most important reasons why accounting is crucial for your business:

1.1. Legal requirements

In Switzerland, bookkeeping is required by law for all companies. Depending on the size and legal form of your company, the requirements vary. While sole traders and partnerships may be able to manage with simple bookkeeping, legal entities (limited liability companies or public limited companies) must keep double-entry bookkeeping and prepare annual financial statements.

1.2. Tax obligations

Proper accounting is the basis for your tax return. Without clean documentation of all business transactions, you will not be able to file a correct tax return, which can lead to legal problems and possibly to higher tax burdens.

1.3 Financial planning

Well-organized accounting allows you to assess the financial situation of your company at any time. You can see early on whether your company is profitable or whether financial bottlenecks are looming, and take appropriate countermeasures.

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2. Different accounting methods: single or double entry?

There are two main methods of accounting: single entry and double entry. Which method you choose depends on the size and legal form of your company.

2.1. Simple bookkeeping

Simple bookkeeping only records income and expenses. This method is particularly suitable for sole proprietorships or partnerships with an annual turnover of less than CHF 500,000.

2.2. Double-entry bookkeeping

For legal entities (limited liability companies or public limited companies), double-entry bookkeeping is required by law – for sole traders and partnerships, the legal requirement only applies to those with an annual turnover of CHF 500'000 or more. This method records both the company's income and liabilities, thus providing a more comprehensive insight into its financial situation. Each transaction is posted to two accounts – a principle known as “debit and credit”.

2.3. Which method is right for you?

If you run a sole proprietorship or a partnership, single-entry bookkeeping may be sufficient. You should always check whether double-entry bookkeeping is required by law. If you are liable for VAT (from a turnover of CHF 100,000) and run a sole proprietorship or a partnership, double-entry bookkeeping is recommended.

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3. Important accounting terms

If you are dealing with accounting in a more intensive way, you will come across numerous technical terms. Here are some of the most important terms you should know:

3.1. Balance sheet

The balance sheet is a snapshot of your company's assets and liabilities at a specific point in time. It shows how much your company is worth and how it is financed. The balance sheet consists of two sides:

• Assets: The value of your business (e.g. cash, equipment, receivables).
• Liabilities: Your business's debts and equity.

3.2. Profit and loss statement

The profit and loss statement shows your business's financial performance over a specific period of time. It lists all income and expenses and shows whether your business has made a profit or a loss.

3.3. Accounts receivable and accounts payable

• Debitors are unpaid invoices from your customers. These open claims are listed on the assets side of the balance sheet.
• Creditors are unpaid invoices from suppliers or service providers. These liabilities are on the liabilities side of the balance sheet.

3.4. Provisions

Provisions are liabilities that you create for future expenses that are not yet certain but highly likely. They help you to better manage unexpected financial burdens in the future.

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4. Accounting requirements for small businesses

Even if you run a small business, you are still legally required to keep accounts. Here are some of the main requirements for small businesses in Switzerland:

4.1. Retention requirements

You must keep all receipts and invoices relevant to the accounting for at least ten years. This includes all incoming and outgoing invoices, contracts and accounting records.

4.2. Annual tax return

Even if you do not have extensive accounting obligations, you still have to file an annual tax return. This is based on your company's income and expenses.

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4.3. Simple accounting is often sufficient

For sole proprietorships and partnerships with an annual turnover of less than CHF 500'000 that are not subject to VAT, simple bookkeeping is often sufficient, with only income and expenses recorded. This method is simpler and less laborious than double-entry bookkeeping, which is required for larger companies.

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Conclusion

Bookkeeping is an essential component for the success of your business. Not only does it help you meet legal requirements, but it also provides valuable insights into the financial health of your business. With the right tools and a clear understanding of the basics, you can organize your accounting efficiently and professionally. However, if you are still unsure about the best way to approach your accounting, our sister company, Findea AG, will be happy to help you.

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