Your profit and loss says you made $90,000. Your bank account says $4,000. Both are correct, and the gap between them is where most Australian small businesses get into trouble.
Profit is an accounting opinion about a period. Cash is a fact about a moment. Here is where the difference actually goes, and which of it was never yours in the first place.
The money that was never yours
Start here, because it is the largest single cause and the least understood.
Three amounts sit in your bank account that do not belong to you:
- GST you collected. When you invoice $11,000, you earned $10,000. The other $1,000 is collected on behalf of the ATO and is owed at the next quarter. It never appears as income on your profit and loss, so your profit figure is right while your bank balance is flattering.
- PAYG withheld from wages. Deducted from your employees’ pay and held until you remit it. It looks like your money for a few weeks because it is sitting in your account.
- Superannuation. Twelve percent of qualifying earnings, owed to your employees’ funds.
A business turning over $600,000 a year with a few staff can easily be holding a five figure sum at any moment that is spoken for. Spend it on stock or a vehicle and the quarter arrives with nothing behind it. That is the single most common way a profitable business runs out of money, and it is not a profitability problem at all.
The super float is gone, and this caught a lot of employers out. Until 30 June 2026 you held super for up to a quarter before paying it. Since 1 July 2026 contributions must be received by the fund within 7 business days of payday. If your cash flow quietly depended on sitting on a quarter of super, that working capital disappeared overnight.
The money you earned but have not been paid
Your profit and loss records a sale when you invoice it, not when the money lands. Every unpaid invoice is profit you have already declared, and in most cases GST you already owe, sitting in someone else’s bank account.
The number to know is your debtor days: how long on average between invoicing and being paid.
Debtor days = (accounts receivable divided by annual sales including GST) multiplied by 365.
If you invoice on 14 day terms and your debtor days are 52, you are not running a 14 day business. You are financing your customers for nearly two months, from your own working capital, at your own risk.
Most owners guess this number low. Calculate it before you assume you do not have a debtor problem.
The money sitting on shelves and in half-finished work
Stock is cash converted into things. It costs you money the day you buy it and returns nothing until it sells. A retailer with rising sales and rising stock can be going backwards on cash while the profit and loss looks excellent.
For trades and project businesses the equivalent is work in progress: labour and materials already spent on a job you have not yet billed. It is real value and none of it is available to pay wages this Thursday. Progress claims and retentions make this worse, because retentions are money you have earned, invoiced, and will not see for months.
The money that never touches your profit and loss
Three large payments leave your bank account without appearing as expenses, which is why owners find them so disorienting:
- Loan principal. The interest is an expense. The principal is not. A $2,500 monthly repayment might show only $400 on your profit and loss.
- Equipment and vehicles. You pay the whole amount now and the profit and loss recognises a slice of it each year as depreciation.
- Your own drawings. Depending on structure, money you take out may not be a business expense at all.
Add those three together and you can be genuinely profitable, entirely solvent on paper, and unable to make payroll.
Do you know your debtor days?
We will work out where your cash is actually sitting and give you the figure in writing.
What to do about it
- Separate the money that is not yours. Open a second account and move GST, PAYG withheld and super into it as it accrues, weekly. This is the single highest value change available to most small businesses and it costs nothing. The quarter stops being an event.
- Calculate your debtor days using the formula above, then compare it to your stated terms. The gap is your collection problem, in a number.
- Chase earlier and systematically. Most late payment is not refusal, it is that nobody asked. A reminder before the due date, on the due date, and at seven days past, applied consistently, moves debtor days more than any change to your terms.
- Invoice the day the work finishes. If you invoice at month end, a job completed on the 2nd waited four weeks before the clock even started.
- Look at a thirteen week cash forecast, not a profit and loss. Profit tells you about the period behind you. A rolling forecast of money in and money out tells you which week is tight while you can still do something about it.
The number to watch
If you only track one thing beyond your bank balance, track cash available after setting aside what you owe. Take the balance, subtract the GST collected this quarter, the PAYG withheld, and any super not yet received by the funds. What is left is what you can actually spend.
Most owners have never seen that figure. The first time they do, it explains several years of unease.
This is what our monthly reporting is built around, because a profit figure on its own has never stopped a business running out of money. See how the monthly work is structured, or invoice processing and debtor follow-up if collection is the part that is slipping.
Superannuation rules referenced here apply for the 2026-27 financial year and are drawn from the Australian Taxation Office.
