The most common mistakes when starting out self-employed

When you go self-employed, you get plenty of advice. Some of it is wrong, and the wrong parts tend to be the rules people repeat most often: a statutory 30-day payment term, an AHV allowance for anyone with a small profit, VAT liability that applies retroactively to the whole year. None of the three is actually the law.

The ten mistakes below are ordered by when they usually happen, from your first price to VAT. For each one you’ll find what actually applies and which guide covers it in detail.

1. Converting your old salary into an hourly rate

The obvious route to a first hourly rate is to divide your monthly salary by your working hours and add a bit on top. The result is almost always too low, often by half.

Your salary was only the part that was paid out to you. Your employer carried the employer’s half of the AHV, your paid holiday, your salary during illness and the pension fund contributions, and you were also paid for meetings, administration and winning work. On your own account, all of that falls to you. Of roughly 1,800 working hours a year, only 55 to 70 per cent are billable, depending on the trade.

The guide to your hourly rate shows how to work it out from your target income instead.

2. Starting with a single client

Many people begin with one large client, often their former employer. That brings in turnover straight away, but it puts your self-employed status at risk.

The compensation office decides case by case whether you count as self-employed, and it looks at the economic reality rather than at what your contract calls the arrangement. If practically all your turnover comes from one source, you work with that client’s infrastructure and you carry no entrepreneurial risk of your own, the office will usually classify the work as employment. Having several clients is also the evidence it looks for when you register. The guide to AHV contributions goes into more detail.

3. Putting off AHV registration

There are two opposite mistakes here. If you register before you have any invoices, you have nothing to show the office yet. More often, though, people wait too long.

You have to register on your own initiative, without waiting to be asked (Art. 64 para. 5 AHV Act). Contributions are charged retroactively, and late contributions attract default interest of 5 per cent a year, whether or not you are at fault.

There is also a widespread misconception that a small profit in your first year frees you from contributions. It does not: the minimum contribution is owed even then. The limit below which self-employed income stays free of contributions applies only to a secondary activity alongside a job. The current amounts are in the guide to AHV contributions, where they are updated every year. The guide to the order of steps for starting a sole proprietorship shows where registration fits between the first invoice and the commercial register.

4. Setting nothing aside for AHV and taxes

In your first year you pay provisional instalments based on your own estimate. The final assessment only comes once the tax authority reports your actual income, and that can take years. If business goes better than you estimated, a top-up bill arrives for a year you closed long ago. Income tax on the same profit falls due at the same time.

As a rule of thumb for the AHV, put aside around 10 per cent of your profit as you go. If your income is clearly above your estimate, tell the office and have your instalments adjusted. The guide to the sole proprietorship tax return explains how AHV and taxes interact.

5. Assuming you are insured as you were as an employee

As an employee you had unemployment insurance, accident cover through your employer and a pension fund. When you go self-employed, all of that falls away:

• No unemployment insurance. The self-employed are not covered by the ALV, and there is no substitute.
• No automatic second pillar. Without an employer there is no mandatory pension fund.
• No compulsory accident insurance under the UVG. You are no longer automatically covered through it.

Which of these gaps to close, and how, is best discussed with a qualified adviser. But you should know about them before you take on your first assignment.

6. Logo and website before the name check

A logo is quickly ordered and a domain quickly registered. Both are wasted if you are not allowed to use the name.

For a sole proprietorship, your family name has to form the essential element of the business name (Art. 945 para. 1 CO). “Anna Muster Webdesign” works; “Muster & Partner” does not, because the addition suggests a partnership or company. Zefix shows you which businesses are in the commercial register, but not whether your name is admissible or clashes with a registered trademark. For how to check the name before you spend money on a logo and domain, see the order of steps for starting a sole proprietorship.

7. Running business and private money through one account

No law requires a sole proprietorship to have a separate business account. It is nonetheless universally recommended, for three reasons: your bookkeeping has to be verifiable, the balance of a mixed account tells you nothing about your profit, and matching payments to invoices only works on a clean account.

One thing a business account does not do, though, is limit your liability. As a sole proprietor you are liable with all your assets, however many accounts you keep. The guide to the business account shows how to set up the separation in practice.

8. Leaving the bookkeeping until year end

Collecting receipts in a box and entering everything in one go in February leads to missing receipts, forgotten deductions and figures you only see when it is too late to act on them.

It is less work than many people fear. Below CHF 500,000 of turnover, simple bookkeeping of income, expenditure and financial position is enough (Art. 957 para. 2 CO); the financial position is the part people often forget. You have to keep your books and records for ten years from the end of the financial year (Art. 958f CO), and you may keep them digitally. If you record receipts as they come in, a quarter of an hour a week is usually enough. The guide to the Milchbüchlein explains exactly what simple bookkeeping involves, and the tips for organising your accounting cover practical routines.

9. Invoices without a due date – and reminder fees without a basis

There is no statutory 30-day payment term in Switzerland. Unless otherwise agreed, payment can be demanded immediately (Art. 75 CO). The deadline on your invoice sets when you expect payment. It does not yet settle when your customer is in default.

So give a specific date, ideally agreed in advance, for example in your quote or your terms and conditions. If the due date was agreed, your customer is in default from the following day without you having to send a reminder (Art. 102 para. 2 CO). If the date only appears on the invoice, you may need to send a reminder first. Once your customer is in default, you are entitled to default interest of 5 per cent per year (Art. 104 para. 1 CO), even without an agreement.

Reminder fees work the other way round: they are not owed by operation of law. You can only charge them if they have been agreed in the contract, with the amount stated explicitly. To set this out in your terms and conditions or quote, see the guide to invoicing and dunning.

10. Checking VAT only at the annual close

You become liable for VAT from CHF 100,000 of turnover a year (Art. 10 VAT Act). Three details are regularly overlooked. It is turnover that counts, not profit. Worldwide turnover counts, including sales to customers abroad, provided the supplies would be taxable in Switzerland. And nobody writes to tell you the time has come; the liability arises from your turnover.

If it is already clear at the start that you will reach the threshold, liability begins on day one. If you grow into it, liability begins after the end of the financial year in which you reach the threshold, so it does not apply retroactively. Either way, you have 30 days from the start of liability to register (Art. 66 para. 1 VAT Act). If you show VAT on your invoices before then, you owe it regardless.

It is often confused with a second threshold of the same amount: you only have to enter your sole proprietorship in the commercial register once it has had turnover of CHF 100,000 in the previous financial year (Art. 931 para. 1 CO). The details are in the guide to VAT registration.

The ten mistakes at a glance

Conclusion

Most of these mistakes have the same cause: you don’t know your own figures during the year. If you can see your turnover and profit as you go, you set aside enough for AHV and taxes, you notice in time when VAT becomes relevant, and you know which invoices are still unpaid.

None of this requires double-entry bookkeeping. For a sole proprietorship below CHF 500,000 of turnover, single-entry bookkeeping is all you need, and the Effizo dashboard shows you your turnover and profit at a glance at any time.