Accounting Solutions for SMEs: What You Need to Know

Small and medium-sized enterprises (SMEs) are the backbone of Switzerland’s economy, representing over 99% of all businesses and a significant portion of employment. Despite their diversity in size, type, and legal form, SMEs share a common need: managing their accounting efficiently and compliantly.

This article explores the accounting options available to Swiss SMEs, focusing on the critical decision between managing accounting in-house or outsourcing to professionals. We’ll cover everything you need to know, from understanding the basic legal requirements to identifying the most cost-effective and practical accounting solutions for your business.

What qualifies as an SME in Switzerland?

In Switzerland, an SME is typically defined by the number of employees it has. According to the Swiss Federal Statistical Office, SMEs are “market-based companies that employ fewer than 250 people”.  Companies with more than 250 employees are defined as “large companies”. SMEs are further divided into the following size categories:

• Micro-enterprises: Fewer than 10 employees.
• Small enterprises: 10–49 employees.
• Medium enterprises: 50–249 employees.

As of 2022, over 99% of companies in Switzerland were SMEs (618,170 SMEs compared to only 1,776 large companies). Out of the 618,170 SMEs, 556,360 (90%) were micro-enterprises, 52,191 (8.4%) were small businesses, and 9,619 (1.6%) were medium-sized companies. Out of the 4,758,260 employees of Swiss companies, SMEs employed a total of 3,159,855 (66%) compared to the 1,598,405 (34%) employed by large companies.

SMEs in Switzerland operate across industries and legal structures, from sole proprietorships to stock corporations. Their accounting obligations depend on these legal forms along with their annual turnover, which we’ll explore next.

Accounting for SMEs: What are the requirements?

In Switzerland, the accounting and tax requirements for businesses depend upon their legal form, annual turnover, and other factors (location, number of employees, nature of their business activities, etc.).

We can generally distinguish between the accounting obligations of businesses which are inseparable from their owners (i.e., not separate legal entities), which include sole proprietorships and general partnerships, and companies with share capital (separate legal entities), which include corporations (AG) and limited liability companies (GmbH).

Sole proprietorship and general partnership

For sole proprietors and general partnerships with an annual turnover below CHF 500,000, Swiss law permits simplified cash-based accounting (sometimes called “milk book” accounting). These businesses are only required to track income, expenses, and their financial position in a simple manner.

However, businesses exceeding the turnover threshold are required to follow full double-entry bookkeeping as laid out in the Swiss Code of Obligations (CO) and prepare annual financial statements, including a balance sheet, income statement, and notes.

These types of businesses are not separate legal entities, which means that the business income is treated as part of the personal income of the owner/s and taxed accordingly. Both sole proprietorships and general partnerships are required to register for and collect VAT if their annual turnover exceeds CHF 100,000, whereas those with a turnover below this threshold are exempt from VAT obligations.  

Companies with share capital: AG and GmbH

Corporate entities such as stock corporations (AG) and limited liability companies (GmbH) face stricter accounting requirements. Proper double-entry bookkeeping is mandatory for these companies irrespective of their annual turnover, along with detailed financial statements (balance sheet, income statement, and notes). AGs and GmbHs are also required to register for VAT and collect it on their sales and services if their annual turnover exceeds CHF 100,000.

While all capital companies are required to follow double-entry bookkeeping, there are some differences in the stringency required depending on the size and turnover of the company.

Are all companies required to prepare a cash flow statement?

According to Article 961 of the Code of Obligations (CO), only those companies that are required by law to undergo an ordinary audit must also prepare a cash flow statement in addition to the three main components of the financial statement (balance sheet, income statement, and notes). Art. 727 para. 1 CO states that the following companies must undergo an ordinary audit (and thus also prepare a cashflow statement):

• Publicly traded companies: Companies (a) whose shares are listed on a stock exchange, (b) have bonds outstanding, or (c) contribute at least 20 percent of the assets or turnover to the consolidated accounts of a company fulfilling conditions (a) or (b).
• Larger companies: Companies that exceed two of the following three thresholds in two consecutive financial years:
  • A Balance sheet total of CHF 20 million,
  • Sales revenue of CHF 40 million,
  • 250 full-time positions on average per year.

Most Swiss SMEs don’t need to prepare a cash flow statement or undergo an ordinary audit

As you can see, a mandatory ordinary audit and preparation of a cash flow statement is unlikely to apply to most SMEs in Switzerland. The definition of an SME is that it has less than 250 employees. Therefore, an ordinary audit and cash flow statement are only mandatory for Swiss SMEs that are publicly traded or exceed both of the other two thresholds in two consecutive financial years (a balance sheet total of CHF 20 million and a sales revenue of CHF 40 million). As most SMEs in Switzerland do not meet these criteria, they would typically only have to undergo a limited audit, which involves less detailed testing and review compared to an ordinary audit. Micro-enterprises (fewer than 10 employees) may opt out of the audit entirely.

So what does this all mean?

This means that many SMEs in Switzerland can benefit from simplified accounting procedures at some level, be it not needing to keep double-entry bookkeeping at all (for sole proprietors and general partnerships with an annual turnover of less than CHF 500,000), or just having reduced reporting and auditing requirements (for most SMEs).

Manage your own accounting or outsource? What makes sense for Swiss SMEs?

Adhering to Swiss accounting standards and regulations can be complicated for SMEs, even for those with less stringent requirements. This leads many business owners to consider outsourcing their accounting to a professional trustee.

Whether to handle accounting in-house, outsource it, or adopt a hybrid approach is indeed one of the most significant decisions for SMEs. The choice depends on many factors, such as the individual company’s legal form, size, complexity, accounting expertise, and individual preferences.

When does in-house accounting make sense?

Managing accounting internally may be a feasible option for SMEs with:

• Relatively simple financial transactions,
• Limited budgets for professional services,
• Employees who have some basic accounting skills or are familiar with accounting software.

However, taking care of your own accounting requires a solid understanding of Swiss accounting standards, careful attention to detail, and considerable time. SMEs considering this route should understand the challenges involved, such as:

• Time commitment: Owners or employees managing accounting in-house must dedicate time to bookkeeping, reconciliation, and compliance tasks.
• Risk of errors: Mistakes in recording transactions or calculating VAT can result in penalties.
• Skill limitations: Without specialized knowledge, handling complex requirements like tax filing or annual financial statements can become difficult.

How can accounting software help?

Modern accounting software has made it significantly simpler for SMEs to manage their finances, offering features such as:

• Automated invoicing and expense tracking,
• VAT calculations and reporting,
• Integration with banking systems, and
• Payroll management.

For micro and small businesses, these tools can streamline accounting tasks and improve accuracy while ensuring compliance with Swiss accounting standards. They also provide dashboards and reports that help owners monitor cash flow and profitability in real time.

That said, software isn’t a one-size-fits-all solution. SMEs need to evaluate factors like cost, usability, and scalability when selecting a platform and determining whether to even manage their accounting internally at all.

Despite the versatility and advantages of advanced accounting software, there are always limitations to doing your own accounting with the use of such tools. For complex accounting needs, the expertise of a professional accounting provider is essential, often necessary to ensure proper software utilization, accurate interpretation, and effective oversight.

Should SMEs outsource their accounting?

Outsourcing accounting involves hiring external professionals or firms, such as Nexova AG, to handle financial record-keeping and compliance tasks. The scope of services can range from basic bookkeeping to comprehensive accounting solutions, including tax planning, payroll management, financial reporting, and strategic financial advice.

Outsourcing is recommended for most SMEs in Switzerland because of its many advantages over in-house accounting:

• Reduce costs: Outsourcing eliminates the need to hire and train internal accounting staff, making costs more predictable and manageable.
• Access expertise: External providers like Nexova AG bring specialized knowledge and cutting-edge accounting technology to streamline your processes.
• Save time: Delegating your accounting to a professional frees up valuable time to focus on your core business activities.
• Avoid errors: Professional accountants ensure compliance with tax regulations and minimize risks of costly mistakes.
• Scale easily: Outsourcing offers flexibility to adjust accounting services as your business grows or requirements change.

Hybrid approach: the best of both worlds

There is another option for SMEs to consider when it comes to handling their accounting in the most efficient, cost-effective, and accurate way: to the utilize the benefits of both in-house and outsourced accounting.

A hybrid approach allows SMEs to combine the cost-efficiency of in-house accounting with the expertise of outsourced services. Here’s how it typically works:

• Day-to-day accounting: The SME handles simple daily tasks like recording transactions and invoicing with the help of accounting software.
• Specialized tasks: An external accountant manages more complex processes, such as VAT accounting, payroll, preparation of financial statements, and tax filings.

This simple division of labor helps ensure that the SME maintains accurate accounting records and remains compliant with Swiss accounting standards without having to unnecessarily pay someone else to do those simpler tasks that they can manage on their own. Hybrid accounting also provides flexibility. SMEs can scale their reliance on professional services as they grow, avoiding unnecessary overhead during their early stages.

That said, caution is needed when multiple people work on the same accounting system. Miscommunication can lead to errors that are difficult to trace and correct later. To ensure smooth cooperation, it’s important to establish clear roles and responsibilities. Additionally, the company must have enough technical expertise and time to manage its part of the process effectively.