Cash Flow Management Basics

The most worried phone calls we get are rarely from failing businesses. They come from busy ones — a full order book, a profit showing on paper, and not enough in the bank to cover Friday's wages. Profit and cash are different things, and the gap between them is where most small business stress lives.

Cash flow management is not a spreadsheet skill reserved for accountants. It is a handful of habits: knowing the difference between profit and cash, understanding your own cash cycle, quarantining the money that was never yours, and looking far enough ahead to act before the pressure arrives.

Cash is not profit

Your profit and loss report records income when you invoice, not when you get paid, and it leaves out things that drain the bank account entirely — loan repayments, equipment purchases, your own drawings, and the GST you collected on behalf of the ATO. So a business can show a healthy profit while the account runs dry, and a quiet month on paper can coincide with plenty of cash arriving from earlier work. Neither report is wrong; they are answering different questions. The bank balance answers a third question again, because it includes money that is already spoken for.

Know your cash cycle

Every business has a cycle: money goes out for wages, materials and stock first, and comes back in when customers pay. The length of that gap is the cash flow cycle, and it is why growth so often feels like a squeeze — more sales mean more wages and stock paid for up front, well before the extra receipts land. The levers are practical: invoice the day the work is done, take deposits on larger jobs, chase overdue accounts early, keep stock lean, and use the full terms your suppliers offer. Each one shortens the stretch of the cycle you are funding yourself.

The money that was never yours

A portion of what flows through your account belongs to someone else: GST collected on sales, PAYG withheld from employee wages, and superannuation accruing on every pay run. Super has historically been payable within 28 days after the end of each quarter, and the timing rules around paying super are changing — check the current ATO requirements rather than relying on the old rhythm. The simplest protection is a separate bank account that receives a regular transfer for GST, withholding and super, sized with your accountant's help. When the BAS arrives, the money is already sitting there, and the BAS becomes paperwork instead of a crisis.

Build a 90-day view

A 90-day cash view is a simple rolling picture: the bank balance today, the receipts you genuinely expect based on invoice due dates and how customers actually behave, and the committed payments ahead — wages, rent, suppliers, loan repayments, and the BAS and super dates. It does not need to be perfect to be useful. Updated weekly, it turns a surprise into a forecastable dip, and it gives you weeks to arrange terms, chase debtors or defer spending instead of days.

What we commonly see go wrong

• GST and super money spent because it was sitting in the main account looking like surplus.
• A good month treated as spare cash rather than the buffer for the quiet month that follows.
• Growth funded accidentally by the ATO — activity statement debts creeping up because they were the only bill without a person chasing them.
• No forward view at all, so ATO payments, insurance renewals and quarterly super all land as surprises.

A worked example

As an illustration: a landscaping business wins its largest ever contract. Wages and materials go out weekly from the first week, the client is invoiced monthly, and the client pays on 30-day terms. The job is profitable — and every month it runs, the business is deeper out of pocket, because the cash gap grows with the size of the work. A deposit up front, weekly progress invoicing and a short cash forecast would have shown the shape of the problem before the contract was signed, and given the owner grounds to negotiate terms that the client would very likely have accepted.

When to get help

If you are regularly choosing which supplier to pay, if the ATO has quietly become your biggest creditor, or if you cannot say what the bank balance will look like in a month, it is worth building the forecast and the set-aside routine with your accountant or bookkeeper. We see this often, and the fix is usually a system, not a windfall.

My business is profitable — why is there never any money in the bank?

Profit is measured when income is earned and expenses are incurred, while cash moves when money actually changes hands. Loan repayments, equipment purchases, drawings, GST and tax payments all reduce the bank balance without reducing profit, so a profitable business can still run short of cash — especially while it is growing.

How much should I set aside for GST, tax and super?

It depends on your margins, payroll and structure, so there is no single safe percentage. A practical approach is a separate bank account with a regular transfer sized by your accountant from your actual BAS and payroll history, reviewed once or twice a year as the business changes.

What is the quickest way to improve cash flow?

Usually the receivables end: invoice the day the work is done, take deposits on larger jobs, put clear due dates on invoices and follow up early. Most businesses find more cash in their own debtor list than in any new borrowing.