Sole proprietorships with an annual turnover of less than CHF 500,000 are not required to keep double-entry accounts. Nevertheless, double-entry bookkeeping also offers advantages to sole traders. In this blog post, you will learn what double-entry bookkeeping can do for your business.
Double-entry bookkeeping: What entrepreneurs need to know about this
What does double-entry bookkeeping mean? In contrast to simple bookkeeping, with double-entry bookkeeping, you record all income and expenditure not just once, but twice: You record, on the one hand, on which account the movement took place (account) and, on the other hand, what your company uses the money for (contra account). For example, if you fill-up the company car and pay for the fuel with a company bank card, you will have less money in the bank account but more expenses in the mobility account. Thanks to double-entry bookkeeping, you can immediately see on which accounts a movement took place and what the expenditure was for.
Which companies are obliged to keep double-entry accounts? Limited liability companies (GmbH) and public limited companies (AG) must comply with the double-entry bookkeeping requirement. According to the Code of Obligations (CO), sole proprietorships are obliged to keep double-entry accounts if they achieved an annual turnover of at least CHF 500,000 in the last business year (Article 957). Sole proprietorships with less than CHF 500,000 turnover per business year are not subject to double-entry bookkeeping. But double-entry bookkeeping also offers numerous advantages to sole proprietorships.
Reading Tip: In this blog post, you will find an overview of the most common legal forms in Switzerland and learn more about what the legal form means for accounting.
Below we have listed five reasons why double-entry bookkeeping is always worthwhile:
1. Make data-based decisions
What do the numbers say? Accurate accounting is an important foundation for data-based and neutral business decisions. As described above, with simple bookkeeping you only find out what your profit or loss is. Double-entry bookkeeping, on the other hand, gives you a deeper insight into the financial situation of your business. For example, you can see at a glance how much money you have left until the end of the quarter or financial year, what the ratio between equity and debt is and what your reserves are. These deeper insights help you make unbiased business decisions, optimise, and make plans.
2. Recognising cash flow problems in suitable time
The cash flow is often referred to as the most important operating indicator. You can use a cash flow calculation to determine the cash inflow and outflow in your SME during a certain period. With double-entry bookkeeping, you get a better overview of the cash flow than with single-entry bookkeeping and can detect money problems earlier.
Extra Tip: Fully automated accounting systems allow you to access the most important key figures at any time. For example, you can calculate the cash flow within seconds.
3. Make liquidity planning easier
According to the SME portal of the Swiss Confederation it is estimated that nine out of ten bankruptcies are due to liquidity shortages. Liquidity is the ability of a company to meet due payments on time. Liquidity plans help companies to use liquid funds correctly and avoid bottlenecks. In a liquidity plan, you record all cash inflows (deposits) and cash outflows (payments) during a certain period. Cash inflows include cash on hand, deposits from clients, tax refunds and borrowings. Cash outflows include costs for purchasing goods, rent and wages.
If you recognise any liquidity problems in suitable time, your company can take the appropriate countermeasures. For example, you can collect outstanding debts by means of payment requests, postpone non-essential investments, or take out a loan.
Attention: Remember that turnover does not say much about the liquidity of your business. If you have high expenses for materials, rent or wages and your customers do not pay their invoices on time, cash flow and liquidity problems can occur despite good sales figures.
4. Work together more efficiently
Regardless of the size of the company, double-entry bookkeeping makes it easier to organise replacements during holiday absences, parental leave, or absences due to illness. The deputy sees exactly what your company took in and spent money on in the last few weeks. This eliminates time-consuming handovers.
If you work with tax advisors, trustees, or consultants, you can always deliver precise figures with double-entry bookkeeping. This reduces the time and thus also the financial expenditure for external advisory services and audits.
5. Create a good starting position for debt financing
In principle, most SMEs in Switzerland finance themselves mainly through equity. However, debt financing is gaining in importance. If you want to apply for a bank loan or start a financing round, your bookkeeping should be as accurate and up to date as possible. With double-entry bookkeeping, you can also provide external stakeholders with optimal information about the situation of the company.
How to do double-entry bookkeeping in a few minutes
In order to keep the accounting effort manageable even with double-entry bookkeeping, more and more entrepreneurs are working with a fully automated accounting system. A smart tool takes care of routine tasks as well as exceptional cases. With the Solution from Accounto for example, users only need to submit receipts, create invoices with a few clicks and approve them.Book a free demo of the Swiss accounting solution Accounto here and find out how your company can also complete its accounting in just a few minutes per week