Your accountant says you made a healthy profit.
Revenue is up. The business is busy. There’s plenty of money coming through the bank account.
But when you look at the actual cash sitting there, you might find yourself wondering:
Where did all the money go?
If your business cash flow never seems to match the profit showing in your accounts, you’re definitely not alone.
It’s one of the most common frustrations we see with business owners. And usually, the problem isn’t that the business isn’t making money.
The problem is that profit and cash are two very different things.
If this sounds familiar, our Cash Flow Coaching approach is designed to help business owners understand exactly what is happening with their cash, identify pressure points and start making decisions based on what is coming next, not just what happened last year.
Why business cash flow can feel tight even when you’re profitable
One of the biggest misconceptions in business is that if you make a profit, you should have that amount sitting somewhere in the bank.
Unfortunately, it doesn’t quite work that way.
Your financial statements might say the business made $200,000 for the year, but during that same year you may have:
- paid down business loans
- purchased vehicles or equipment
- paid tax relating to a previous period
- made PAYG instalments
- paid GST through your BAS
- taken money from the business for personal expenses
- increased wages or other overheads
- had customers who were slow to pay
- built up stock
- reinvested money back into growing the business.
Suddenly, that $200,000 profit looks very different.
This is why looking at your profit and loss statement alone doesn’t tell you the whole story.
Understanding your business cash flow means understanding not only what you’re earning, but where the cash is actually going.
The ATO Cash Flow Article is also a useful resource for business owners. It focuses on some very practical questions, including whether your business is trading profitably, whether enough money is being put aside for financial commitments, and whether your business is actually getting ahead.
The BAS isn’t really the surprise
We hear this one a lot:
“The BAS came in and wiped out the bank account.”
But ideally, your BAS shouldn’t be a surprise.
GST you’ve collected was never really available to spend in the first place. The same principle applies to amounts you’re required to withhold and other tax obligations.
The problem starts when all the money coming into the business lands in one account and starts to look like available cash.
There’s $80,000 in the bank, so everything feels great.
Then wages go out.
Super is due.
The BAS arrives.
The credit card gets paid.
A supplier invoice lands.
The owners need money personally.
And suddenly that healthy bank balance has disappeared.
Setting aside cash for known obligations and planning ahead for upcoming payments can make a significant difference to cash flow management.
More importantly, it gives you a much clearer picture of how much money the business genuinely has available.
The Australian Government also has some useful information on managing business finances and cash flow, including tools and guidance to help businesses plan ahead.
Turnover can make you feel richer than you are
There’s another number business owners understandably love talking about.
Revenue.
“We’ve just cracked $1 million.”
“We’re on track for $2 million this year.”
“We grew by 30%.”
And growth is exciting.
But we’d much rather see a $1 million business producing strong profit and healthy cash flow than a $2 million business where the owners are stressed every quarter trying to find the money for tax.
More sales don’t automatically equal more money in your pocket.
Growth often brings more:
- wages and super
- contractors
- equipment and vehicles
- software
- insurance
- rent
- stock
- finance repayments
- administration
- working capital requirements.
Sometimes a business can grow rapidly while its business cash flow actually gets worse.
That’s why business owners need to understand more than:
“How much did we sell?”
A much better question is:
“What are we actually keeping?”
This is also why we take a forward-looking approach to business accounting and advisory. Compliance matters, but understanding profitability, cash flow and what your numbers are telling you about the future is where financial information becomes really valuable.
Then there’s the money you’re taking home
This is where business and family finances start to collide.
Your business might be profitable, but how much does your household need from it?
Mortgage repayments, school fees, holidays, cars, investment properties and everyday living costs all have to come from somewhere.
Over time, it can become very easy for personal spending to expand alongside the business.
A good year leads to a bigger lifestyle.
Then the business has an average year, but the household still needs the same amount of money.
That can put enormous pressure on business cash flow.
One of the most useful things a business owner can do is understand what the business can sustainably afford to pay them, rather than simply drawing money whenever the personal account needs topping up.
And this is also where the bigger picture becomes important.
Your business shouldn’t exist just to keep feeding itself.
Ideally, it should also be helping you build the life and financial future you’re working so hard for.
So, where is all the money going?
This is the question we actually want business owners asking.
Not just:
“Did we make a profit last year?”
But:
“Where is our cash going, and is that where we want it to go?”
There’s a big difference.
Looking backwards tells us what happened.
Looking forward gives us an opportunity to change it.
A useful cash flow forecast might look at:
- what cash is expected to come in over the next 3, 6 and 12 months
- upcoming tax and BAS obligations
- wages and super
- debt repayments
- major purchases
- seasonal highs and lows
- how much the owners need to take from the business
- whether pricing and margins are strong enough
- whether overheads have crept up
- how much cash the business should keep in reserve
- what needs to change to achieve the owners’ goals.
That’s when the numbers start becoming genuinely useful.
They stop being a report about what has already happened and start becoming a tool for deciding what happens next.
If you want to have a go at mapping this yourself, the Australian Government provides tools and guidance for managing business finances that can be a useful starting point.
What would happen if you looked forward instead of backwards?
Imagine knowing your BAS is due next month and already understanding exactly what impact it will have on cash flow.
Imagine knowing what your cash position is likely to look like three or six months from now.
Imagine being able to see whether hiring another employee is affordable before you commit to the additional wage.
Or knowing whether the business can afford a new vehicle, equipment purchase or larger premises.
Or being able to take that family holiday without wondering whether the business will struggle while you’re away.
That’s where business cash flow planning becomes much more powerful.
Your numbers shouldn’t just be something you review once the financial year is finished.
They should help you make decisions before you make them.
Your accountant should help you understand what’s next
Compliance is important.
Tax returns need to be lodged. BAS needs to be prepared. Financial statements need to be completed.
We absolutely do all of that.
But at Amarose Accounting, the conversations we really love are the ones that come next.
- Where are you trying to take the business?
- What do you want the business to provide for your family?
- Are you actually making enough money for the level of risk and effort you’re putting in?
- Can you afford the next employee, vehicle or investment?
- How much cash should you keep in the business?
- What needs to change over the next 12 months?
For some businesses, this means regular Cash Flow Coaching. For others, it may mean implementing the Profit First system to create more structure around the way cash moves through the business.
Because ultimately, your accountant shouldn’t just be able to tell you where your money went last year.
They should help you decide where it needs to go next.
Making a profit but still wondering where the cash is going?
If your business looks profitable on paper but cash always feels tighter than it should, it may be time to look beyond the tax return.
At Amarose Accounting, we work with business owners on business cash flow, profitability, tax planning and forward-looking business advisory, helping you understand your numbers and use them to make better decisions.
Because knowing what happened last year is important.
Knowing where you’re going next is even more valuable.
If you’d like to understand where the money is going and what your numbers are telling you about the future, book a discovery call with Amarose Accounting.
This information is general in nature and does not take into account your individual circumstances. We recommend obtaining professional advice before making financial, tax or business decisions.