Most owners who ask this question are not careless. They know their sales, they know roughly what they spend, and the accountant’s figures arrive once a year, months after the money has gone. The gap between “we are busy” and “there is nothing in the account” is real, and it has a short list of causes.
The short answer
A business that trades but does not make money is losing it in one or more of seven places: the margin on each sale is too thin, staff cost too much for the sales they support, overheads have grown, customers are paying late or not at all, cash is sitting in stock, the owner is taking out more than the business makes, or the books are wrong and the real picture is worse (or better) than it looks. The way to find out which is to rebuild the year from the bank, not from memory.
1. The margin on each sale is too thin
Gross margin is what is left of each dollar of sales after the direct cost of making that sale: ingredients for a café, stock for a shop, materials and subcontractors for a trade. If it is a few points below what similar businesses achieve, no amount of extra work fixes it. More sales at a thin margin can even lose more money, because every sale also carries a share of rent and wages.
The quickest test is the ATO’s cost of sales ratio for your industry. A café whose ingredients and packaging run at 44% of turnover sits well above the ATO range of 33–42%, and that gap alone can be the whole year’s profit. See the café and coffee shop benchmarks and the guide to raising prices.
2. Staff cost too much for the sales they support
Wages are the largest cost for most service businesses and the one that drifts most quietly. A roster that made sense at last year’s sales, a quiet afternoon still fully staffed, overtime that became normal. The measure is labour as a share of turnover, and the ATO publishes the range for most industries. More in staff costs too high?
3. Overheads crept up
Software subscriptions, insurance, a second phone plan, the bookkeeper’s extra hours, card fees: each one is small, none of them was ever decided as a whole. Overheads are fixed, so they bite hardest when sales dip. See overheads creeping up.
4. You are owed money you have already earned
For trades, wholesalers and anyone who invoices, the profit can be real and still not be in the bank. Work done, invoice sent, payment late. Ten jobs owing $4,000 each is $40,000 of your money sitting in your customers’ accounts. See customers who owe you money.
5. Cash is sitting on a shelf
Stock you bought but have not sold is cash you cannot use. A shop or trade that buys in bulk to get a discount can look like it lost money in the months it stocked up, because every purchase leaves the bank the day it is paid. That is why a business can be profitable on paper with no cash.
6. The owner takes out more than the business makes
Drawings, personal card payments and the owner’s car run through the business account. None of it is a business cost, all of it leaves the bank. If the business makes $60,000 a year and the owner draws $85,000, the account falls by $25,000 no matter how well the business runs.
7. The books are wrong
Miscoded costs, a reconciliation that never balanced, materials booked as overheads, a loan repayment recorded as an expense. When the books are wrong you cannot see which of the six problems above is yours. This is the most common finding of all, and it is why the answer has to start from the bank statement, which cannot be miscoded.
See where your business sits, from your bank statement
Upload a CSV or PDF of your business bank account (3 to 12 months). The health check rebuilds what you really earn, compares each cost with businesses like yours, and shows where money is leaking and who owes you. Free to run: you see how much is at stake before you pay anything.
Any bank, any currency. The file is read once and not kept. Full report from $149.
How to find yours from your bank statement
You can do this by hand with a spreadsheet and a free afternoon:
- Export 12 months of your business account as CSV from online banking. Twelve months smooths out seasons; three is enough to start.
- Group every payment by who it went to: suppliers of stock or materials, subcontractors, wages, rent, vehicles, software, loan repayments, tax, the owner. Banks label business payments like a household’s, so this is the slow part.
- Take out what is not trading: transfers between your own accounts, loan money in, loan repayments (the interest is a cost, the principal is not), and the owner’s drawings.
- Divide each group by sales received in the same months. Those percentages are what the ATO benchmarks compare.
- Compare with your industry using the ATO small business benchmarks, and mark anything outside the range.
- List who owes you: match each invoice or job to the payment that should have followed it.
The SimpleFeasibility health check does these steps for you. It reads the statement, guesses each payee for you to confirm, rebuilds the year, compares each cost with sourced figures for your industry, and prices each fix in profit a year.
What to fix first
Fix in order of money and speed. Collecting what you are owed is cash this month. A price change or a supplier renegotiation shows up in the next quarter’s margin. A roster change takes one to three months. An overhead review is quick but usually worth the least. Moving premises or cutting a product line is slow and should be tested properly first, which is what a feasibility study is for.