Are You Really Making a Profit? 5 Mistakes Business Owners Make
It's one of the most common surprises at tax time: You thought your business was doing well, but at the end of the financial year, the numbers tell a different story. Maybe the bank balance looked healthy, but now you're staring at an unexpected tax bill — or worse, a loss.
Here are five reasons why your profit may not be what you think, and how to get a clearer view of your business's financial health.
1. Confusing Cash Flow with Profit
Just because there's money in your bank account doesn't mean your business is making a profit. Cash flow is about the timing of money moving in and out of your business, while profit is about whether you're actually earning more than you're spending. The two are related, but not the same.
Take this common scenario: you've just had a massive month of invoicing, and the bank balance looks great. But if you still owe suppliers, subcontractors, BAS, wages, or super, that cash isn't really yours yet. You may be sitting on what looks like a surplus, but it's already spoken for.
Or, you might be spending ahead, buying materials for future jobs or paying rent quarterly in advance, meaning your cash flow is tight, but your business is still profitable. Without proper reporting, it's hard to tell.
Where business owners are going wrong
Business owners can get caught out if they treat their bank balance like a scoreboard. If there's cash, it can be easy to assume things are going well. But a bank account only tells you what's in the account right now — not what's been earned, what's owed, or what's coming up.
Differentiating cash flow from profit
Accounting reports, such as your Profit & Loss (P&L) statement, can be used to track actual income and expenses over time. A good P&L shows whether your business is truly making money, regardless of what's sitting in your bank account.
It can be helpful to review these monthly or quarterly. Your accountant can help you spot red flags early, such as rising expenses, underperforming jobs, or shrinking margins, long before tax time.
It's not about making things complicated, it's about making informed decisions. When you know what's really going on behind the bank balance, you can price better, plan ahead, and grow sustainably.
2. Not Paying Yourself Properly
One of the most overlooked aspects of small business finances is how the owner pays themselves. Many business owners withdraw money from their business account whenever they need to — perhaps to cover personal bills, take a holiday, or pay off debt — without a structured approach.
When you don't treat your own wage as a business expense, your profit figures are misleading, and you might be missing out on potential tax deductions. On paper, your business might look like it made a decent profit, but that's often because you haven't properly accounted for the cost of your own time and effort. In effect, you're working for free, or for far less than you'd ever accept from an employer.
This becomes a significant problem when:
- You try to scale the business and hire someone to do your role.
- You want to step back from the business, but discover it can't afford a replacement.
- You're trying to assess the true financial health of your business.
If the business can't afford to pay you a market wage and still turn a profit, it's not actually profitable, it's just surviving on your unpaid labour.
Determine a fair wage for yourself
You don't have to be on payroll, but you do need to know what your time is worth.
- Assign yourself a market-based wage or salary on paper, even if you draw profits differently.
- Factor that amount into your pricing and financial planning. It should be treated like any other fixed cost.
- Track what you actually draw from the business and compare it to what you should be paid.
This gives you a much clearer view of whether the business is truly sustainable, not just for now, but long term. If the numbers don't support paying you properly, it's a sign that your pricing, margins, or workload might need adjusting.
You deserve to be paid for the work you do. Building that into the structure of your business isn't just smart accounting, it's how you build something that supports you, not the other way around.
Note: The way you pay yourself may depend on your business structure (sole trader, company, partnership, or trust). Always seek advice from your accountant to make sure it's set up correctly for tax optimisation and compliance.
3. Overlooking Tax and Super
Tax and superannuation obligations don't go away, they just hit later and harder, especially when the general interest charge (GIC) is added to the bill, which is no longer tax deductible.
It's easy to forget about these bills when the money hasn't left your account yet. But when they fall due — whether it's quarterly BAS, end-of-year tax, or employee super payments — they can come as a nasty surprise. For many business owners, this is when they realise that what looked like profit wasn't really theirs to keep.
This situation is especially common for businesses without payroll systems in place. If you're not actively planning for these costs throughout the year, they can wipe out your cash flow and put pressure on the business.
Make tax and super part of your regular money routine
To avoid any nasty surprises, it can help to set aside a percentage of every payment you receive, even 20 to 30 per cent, can help create a buffer for when those obligations fall due. The key is to treat these amounts as non-negotiable, just like rent or wages, and factor them into your ongoing cash flow planning.
If you have employees (or you're paying yourself super), ensure your super contributions are made regularly and on time. Automating these payments can help you stay compliant and avoid last-minute scrambles or penalties. Your accountant can help you work out the right amounts to set aside based on your income and business structure.
Setting aside these funds as you go can help you be more prepared, but it also helps you see a more realistic view of your business's cash position. What's left after tax and super is a more realistic reflection of the true profit you can work with.
It's also worth working with your accountant to determine the best use of your working capital. In some cases, it may not make sense to let money sit idle waiting for tax time — it could be reinvested into stock, marketing, or short-term growth opportunities. The goal isn't just to set money aside, but to manage your cash flow smartly so you're always in a position to meet your obligations when they're due.
4. Underquoting or Mispricing Jobs
It's tempting to base your quotes on what competitors are charging or what "feels fair" for the job. But without a clear understanding of your actual costs, you could be underquoting and unintentionally working for less than you should.
This is a common way profit gets eaten away. You might be covering materials and labour, but forgetting the hidden (but very real) costs of running a business.
Some of the most commonly overlooked expenses include admin time, vehicle expenses, tools and equipment wear and tear, insurance, travel time, and the downtime between jobs when you're not earning but still paying overheads. Even small things, like mobile phone plans or subscriptions, add up over time.
When these aren't factored into your quotes, you're essentially subsidising your clients, and your profit margin takes the hit.
Know your numbers
Take time to understand your full cost of doing business, not just the direct costs of each job. Build a quoting model that includes your true overheads and a healthy profit margin. This ensures you're not just covering costs, but also earning what your time and expertise are worth.
If you're unsure where to start, your accountant can help you map out your fixed and variable costs, so you can price with confidence, not guesswork.
5. Ignoring Depreciation and Future Asset Costs
Your tools, vehicles, and equipment won't last forever. If you're not accounting for their eventual repair or replacement, you could be inflating your profit and setting yourself up for a future cash crunch.
For example, your ute might be running fine now, but in a year or two, it may need major repairs or replacing altogether.If you haven't built those future costs into your pricing or set aside money gradually, those large, unexpected expenses can seriously disrupt your cash flow.
This is especially important in trade and service businesses, where expensive gear is essential to delivering your work.
Factor depreciation in
Work with your accountant to factor depreciation into your financial reports and pricing strategy. Even if it's not a formal accounting entry, adjusting your pricing to reflect the wear and tear of your equipment ensures you're prepared when big-ticket costs come up.
This approach helps smooth out your cash flow, keeps your equipment reliable, and ensures your pricing remains sustainable in the long run.
Get Clear on Your Numbers
Don't wait until tax time to find out how your business is really performing. Regular financial reviews (monthly or quarterly) can help you spot issues early and make smarter decisions.
Need clarity on your numbers? We're here to help.
A good accountant does more than lodge your tax, they help you build a business that's profitable, sustainable, and works for you.
Let's take a closer look at your numbers and make sure your profit is real. Get in touch today.
