Separating your business and private account: the advice everyone gives
Put the guides for newly self-employed people side by side and they contradict each other on plenty. On one point they never do: separate business from private, and do it from day one. It is the tip that appears in practically every list.
What those lists rarely give is the reason. And it isn’t the one most people assume.
First of all: it isn’t compulsory
For a sole proprietorship, no law requires a separate business account. A sole proprietorship is not a separate legal person – your business assets and your private assets are legally the same assets. So you are allowed to receive customer payments into your private account.
For a GmbH or an AG it’s different: the company is a legal person in its own right and needs its own account in its own name. Anyone starting out as a sole proprietor has no such obligation.
And one more expectation is wrong: a business account does not limit your liability. As a sole proprietor you are liable without limit with your entire private assets – opening an account changes nothing about that. Anyone treating a separate account as a shield has bought the wrong product.
So why separate?
Reason 1: your bookkeeping has to be verifiable
The Code of Obligations requires bookkeeping that is complete, truthful and systematic – such that an expert third party can review it in reasonable time. That requirement applies to the simplified bookkeeping you may keep below CHF 500,000 of turnover as well.
On a mixed account that is precisely what you no longer have. Between the fee coming in and the materials invoice sit the health insurance premium, the weekly shop, a birthday present and a repayment to a friend. Every movement has to be judged individually: business or private? At two hundred lines a month that stops being a diligence exercise and becomes a source of errors.
If an inspection comes – from the tax office, or from the ESTV if you are VAT liable – you have to prove that separation after the fact. On a clean business account the statement is itself the evidence. On a mixed account it is a claim you have to support line by line.
Reason 2: otherwise you don’t know how you’re doing
This is the reason that matters most day to day. On a mixed account the balance tells you nothing. Is that CHF 8,000 your profit, or the turnover from the last big job, out of which AHV, taxes and the materials invoice still have to come?
Anyone who can’t answer that is spending money that already belongs to someone. That is exactly how the two bills that most often surprise self-employed people come about: the final AHV assessment and the tax bill. How much to set aside is covered in the article on AHV contributions – but you can only set aside what you recognise as profit.
A separate account answers the question almost by itself. What’s on it belongs to the business. What you take out is a deliberate step.
Reason 3: reconciliation only works on clean accounts
The bigger your business gets, the more time it takes to match incoming payments to invoices. On a purely business account almost every movement is either a customer payment or a business expense – so bank reconciliation runs smoothly, because almost every line has a document behind it.
On a mixed account the majority of movements are irrelevant to your books but still have to be looked at and dismissed. The effort grows with your private life rather than with your turnover – a distinctly poor trade. How the matching works in detail is described in the article on booking your bank statement.
What a private withdrawal is – and what it isn’t
Separating the account makes visible what previously wasn’t: you don’t pay yourself a salary. As the owner of a sole proprietorship you take money out of the business, and that private withdrawal is not an expense. It doesn’t reduce your profit and it isn’t tax deductible.
It is one of the most common booking errors at the start. Anyone who records their monthly transfer to their private account as an outgoing calculates themselves poorer than they are – and gets the correction presented later. The reverse applies too: if you put private money into the business, that is a private deposit and not income.
A second, properly kept account turns both into one clear entry rather than a retrospective interpretation.
How to set it up in practice
A second account is enough. It needn’t be an expensive commercial account. Do check your bank’s terms, though: many institutions exclude business use of a purely private account in their conditions.
Everything business goes through it. Income, supplier invoices, insurance, software, the compensation office’s instalments.
One card for business, one for private. Most of the mixing doesn’t happen with transfers, it happens at the till.
Private withdrawals on a fixed rhythm. One amount a month to your private account, booked as a private withdrawal. That’s one line instead of forty.
If it happens anyway, book it immediately. A private payment from the business account is no disaster as long as it is recorded as a private withdrawal. It only becomes a problem when it has to be explained in March of the following year.
And from when?
From the first receipt. That’s the second half of the same advice: anyone who only looks for a tool once the shoebox is full reconstructs a year backwards instead of running it. Receipts are best captured when they arise, and assigning them to the right account is trivial at that moment – a year later it is archaeology.
Further practical routines are in the tips for organising your accounting.
Conclusion
For sole proprietorships a business account is neither compulsory nor liability protection. It is something less spectacular: the precondition for your bookkeeping needing no interpretation, and for you being able to see at any time what is yours and what is merely passing through.
Separation costs an account, a card and a monthly transfer. What it saves, you notice in your first spring – when others are combing their statements for private items and you simply close your books.