Starting a sole proprietorship: the order that saves money

Most guides to starting a sole proprietorship are lists: name, AHV, commercial register, insurance, VAT, bank account. None of that is wrong. What they leave out is the order – and that is where the costs come from.

Some steps cost money if you take them too early: a logo for a name you are not allowed to use, or a commercial register entry with a business purpose that no longer fits a year later. Others cost money if you leave them too late: the AHV claims contributions retroactively, and VAT falls due on turnover you never charged for. This guide puts the steps in an order that avoids both.

Step 1: Check what you are already bound by

Before you look for a name or take on a job, sort out two things that cost nothing but can hold up everything else.

Your employment contract. If you start alongside a job, your duty of loyalty to your employer still applies. For as long as you are employed, you may not do paid work for third parties if doing so breaches that duty – in particular if you compete with your employer (Art. 321a para. 3 CO). A side business in the same industry, serving the same customers, is the textbook example.

Once you have left, a non-compete clause only applies if you agreed to it in writing (Art. 340 para. 1 CO). It is also only binding if you had insight into the customer base or into business secrets, and using that knowledge could cause your employer considerable harm (Art. 340 para. 2 CO). It has to be reasonably limited in place, time and subject matter, and may exceed three years only in special circumstances (Art. 340a CO). Read your contract with this in mind before you approach your first customers – not afterwards.

Any licence you may need. Most activities can be taken up without a licence. Only a few fields are regulated, some by the Confederation – such as the health, teaching and social professions – and some by the cantons, such as transport, architecture and the legal professions. The fact sheets on regulated professions from SERI show whether yours is one of them. Where a licence is required, it comes before the first job, not alongside it.

Step 2: The legal form – a brief orientation

This guide assumes a sole proprietorship. Since the question comes up in every start-up anyway, here is just what fundamentally separates a sole proprietorship from a GmbH (limited liability company):

The point most often underestimated is liability: with a sole proprietorship there is no separation between you and your business. The business’s debts are your debts.

Whether it later makes sense to switch to a GmbH, and when, depends on your profit, your liability risk and your tax situation. There is no fixed turnover threshold for it, which is exactly why it is a question for professional advice rather than a rule of thumb. The federal SME portal has a detailed comparison of all legal forms: Characteristics of the various legal forms.

Step 3: The name – checked before you use it

The name is the step where getting the order wrong costs the most, because everything else is built on it: logo, domain, letterhead, invoice template.

Your family name has to be in it. Anyone running a business on their own must use their family name as the essential element of the business name, with or without their first name (Art. 945 para. 1 CO). You may add words that describe the activity, or an invented name (Art. 944 CO), but nothing that suggests a partnership or company. “Anna Muster Webdesign” works; “Muster & Partner” does not. Plan the name from the start so that your family name fits into it – even if you only enter the commercial register later. Otherwise, when you do register, your business will suddenly have a different name from the one on your logo and website.

Zefix shows what is already registered. In the central business name index Zefix you can see, free of charge, which businesses are in the commercial register. For a more thorough check for similar-sounding names, the Federal Commercial Registry Office recommends a name search, which it carries out for a fee. Either way, you only learn whether the name is already taken, not whether it is admissible – that is for the cantonal commercial register office to decide.

Registration protects less than you might think. A registered sole proprietorship’s name may not be used by anyone else in the same place (Art. 946 CO). In another place, someone else can register the same name. A GmbH, by contrast, must be clearly distinguishable from every business name registered in Switzerland (Art. 951 CO).

Trademarks are a separate register. The commercial register does not check trademarks. The Swiss Federal Institute of Intellectual Property (IPI) points out that it is a mistake to assume a business name is automatically protected as a trademark too – and that a commercial register entry protects only the name, not its graphic design. If someone else has registered your name as a trademark, you may only be able to use it to a limited extent. The IPI therefore recommends checking, before you register, whether identical or similar names are already protected as trademarks.

Only once these three checks are done is the name yours.

Step 4: Domain, logo and website – now, not sooner

With a checked name, you can invest without paying twice. Three things are enough to begin with:

• Your own domain. An address like anna@muster-webdesign.ch comes across differently from a free email address. nic.ch, the registry for .ch domains, shows whether the name is available. You can’t register it there directly; you go through one of the registrars listed on nic.ch. Ideally, check the domain at the same time as the name in step 3: a name whose domain is taken is often the wrong name for that reason alone.
• A simple logo. At the start, your name in a good typeface is usually enough. An elaborate design can wait until you know what your business really looks like.
• A simple website. A website builder will do to begin with. What your customers need first is your offer, your prices and a way to contact you – not a website that cost more than your first jobs brought in.

Step 5: The first invoice

Now comes the step many people expect only after the paperwork: the first paying jobs. It belongs here because the next step depends on it.

Three things are worth sorting out before the first invoice:

• The price. Your old salary is the wrong starting point, because when you work for yourself you pay for your own holidays, sick days, social insurance and non-billable hours. The guide to your hourly rate shows how to work it out.
• The account. A separate business account is not compulsory, but from the first payment onwards it is the simplest route to clean books.
• The invoice itself. The guide to invoicing and dunning covers what belongs on a Swiss invoice, which payment terms are usual and when you can send a reminder.

Step 6: Registering with the AHV

Whether you count as self-employed is decided by the compensation office, not by you. It looks at each case individually and goes by the economic reality rather than by what your contracts say. Among other things, it wants to see that you trade under your own name, carry your own economic risk and work for several clients. If all your work comes from the same source, you will usually be classed as employed.

That is what sets the order: invoices to several different clients are the evidence the office wants to see, and with those in hand you register within the first few months of trading. Don’t wait too long, though: you are required to register without being asked (Art. 64 para. 5 AHV Act), and contributions are charged retroactively. The guide to AHV contributions shows what to expect and how much to set aside.

Step 7: The commercial register – when you must or want to

Registration becomes compulsory after the first year with CHF 100,000 of turnover. The law refers to the previous financial year: anyone running a business that made at least CHF 100,000 of turnover in the previous financial year must enter their sole proprietorship in the commercial register (Art. 931 para. 1 CO). Members of the liberal professions are exempt unless they run a business organised along commercial lines. Your cantonal commercial register office can tell you whether that applies to you.

Voluntary registration is possible at any time (Art. 931 para. 3 CO). Registration costs a fee and protects your name in the place where your business is based. It also tends to make a more established impression on new customers.

Word your business purpose broadly enough. The entry also records the purpose of your business (Art. 38 Commercial Register Ordinance), and every change has to be registered too – which costs a fee each time. So describe your field of activity, not just the one service you are starting with: “design and development of websites and advice on digital communication” will last longer than “building websites for restaurants”. The purpose cannot be completely open-ended, though. The field of activity must be clear to third parties (Art. 118 para. 1 Commercial Register Ordinance).

Step 8: VAT – keep it in view

VAT is the last step, but not the last thing to think about. Its threshold is also CHF 100,000 of turnover, but it follows its own rules: if it is already clear at the start that you will reach it within the first twelve months, VAT liability begins on day one. If you grow into it, liability begins after the end of the financial year in which you reached the threshold. From the start of liability, you have 30 days to register. The details are in the guide to VAT registration.

The figure is the same as for the commercial register, but the authority and the rules are different – which is why it pays to know your turnover during the year, not just at the annual close.

The order at a glance

Conclusion

None of these steps is difficult. What makes starting a sole proprietorship expensive is doing them in the wrong order: a logo before the name check, the AHV before the first customer or long after it, a business purpose that describes only the first service.

From step 5 onwards, almost everything depends on one figure you should always know: your turnover. If you record your income and expenditure from day one, you can see when the commercial register and VAT become relevant, rather than finding out after a deadline has passed. For a sole proprietorship below CHF 500,000 of turnover, single-entry bookkeeping is all you need; how it works is explained in the guide to the Milchbüchlein.

The other common mistakes at the start, from the hourly rate to reminder fees, are collected in the guide to the most common mistakes when starting out self-employed.