Most business owners watch one number too closely. Some look only at what is sitting in the bank account. Others look only at the profit figure at the end of the year. Neither view is complete.
Profit alone does not pay the bills. Cash in the bank does not tell you what is falling due over the weeks and months ahead. A business can be profitable on paper and still run into serious pressure when customers pay slowly, a BAS falls due, or a large expense lands unexpectedly.
That is why every business should be running two budgets side by side: a profit budget and a cash flow budget.
Why business planning is worth the effort
A formal planning process is one of the most effective ways to improve financial performance, manage risk and support growth. Australian government agencies specifically recommend budgeting and cash flow forecasting as core business management tools.
Done properly, business planning helps you:
- Set clear financial and operational goals
- Allocate resources effectively and prioritise spending
- Identify potential cash shortages before they occur
- Make better decisions about staffing, capital expenditure and growth
- Demonstrate financial viability to lenders and investors
- Monitor actual performance against plan and correct course early
What is a profit budget?
A profit budget, also called a budgeted profit and loss statement, estimates whether the business is expected to generate a profit over a future period, usually the next 12 months.
What goes into it
Income
- Sales revenue
- Service income
- Interest income
- Other operating income
Expenses
- Cost of sales
- Wages and salaries
- Superannuation
- Rent and occupancy costs
- Motor vehicle expenses
- Marketing and advertising
- Insurance
- Accounting and professional fees
- Utilities
- Depreciation
- Interest expense
An example structure
| Annual profit budget | $ |
|---|---|
| Revenue | 1,200,000 |
| Less cost of sales | (480,000) |
| Gross profit | 720,000 |
| Operating expenses | (520,000) |
| EBITDA | 200,000 |
| Depreciation | (20,000) |
| Interest | (10,000) |
| Net profit before tax | 170,000 |
What it tells you
A profit budget shows your expected profitability, your gross profit margin, your break even point, whether your pricing is doing its job, and whether the business can fund its own growth.
What is a cash flow budget?
Where the profit budget measures profitability, the cash flow budget measures actual cash movements. It answers a different question: will there be enough money in the account when the payment is due?
Key components
Opening cash balance
Cash inflows
- Customer receipts
- GST refunds
- Asset sales
- Loan proceeds
- Interest received
Cash outflows
- Supplier payments
- Wages and super
- Rent
- Loan repayments
- GST payments
- PAYG withholding
- PAYG instalments
- Capital purchases
- Income tax payments
- Dividends and distributions
Closing cash position
An example monthly cash flow budget
| Month | Jul | Aug | Sep |
|---|---|---|---|
| Opening cash | 50,000 | 42,000 | 55,000 |
| Cash receipts | 100,000 | 120,000 | 140,000 |
| Total available | 150,000 | 162,000 | 195,000 |
| Cash payments | (108,000) | (107,000) | (125,000) |
| Closing cash | 42,000 | 55,000 | 70,000 |
What it tells you
A cash flow budget helps you ensure funds are available to meet obligations, plan ahead for BAS, GST, PAYG and super, identify financing requirements early rather than urgently, schedule major asset purchases at the right time, and support conversations with lenders.
Since Payday Super took effect on 1 July 2026, superannuation now moves with each pay run rather than quarterly, which makes an accurate cash flow budget considerably more valuable than it was even a year ago.
Best practice for Australian businesses
When you prepare your annual budgets:
- Start with historical results. Last year’s actuals are the most honest starting point you have.
- Forecast revenue conservatively. Optimism belongs in your strategy, not your budget.
- Include seasonal fluctuations. Most businesses do not earn one twelfth of their revenue each month.
- Separate fixed and variable costs. This is what makes scenario testing possible.
- Build in GST, PAYG and super obligations. These are the payments that most often catch businesses out.
- Review actual against budget monthly. A budget you look at once a year is a document, not a tool.
- Update forecasts as conditions change. A forecast is a live estimate, not a commitment.
The question worth asking yourself
Do you know what your cash position is likely to be in 90 days’ time?
If the answer is no, that is the gap worth closing first. Profit is an opinion until year end. Cash is a reality every day.
Frequently asked questions
How far ahead should a cash flow budget go? Twelve months is standard, broken down monthly. If your business is in a tight period or going through change, a rolling 13 week cash flow forecast at weekly detail gives you much sharper visibility.
My accounting software already produces reports. Do I still need a budget? Reports tell you what has already happened. A budget tells you what is expected to happen, which is what lets you act while there is still time to change the outcome.
How often should budgets be reviewed? Compare actual against budget monthly, and refresh the forecast at least quarterly, or whenever something material changes such as losing or winning a major customer.
Can a profitable business really run out of cash? Yes, and it happens regularly. Growth is a common cause. Growing businesses fund wages, stock and work in progress before customers pay, which consumes cash even while profit looks healthy.
Build a roadmap for the year ahead
If you would like help preparing a profit budget, a cash flow forecast or a full business plan for the year ahead, the team at Professional Business Advisory can build one with you and review it with you as the year unfolds.
Call us on +61 417 733 869 or get in touch to book a planning session.
This article is general information only and does not take your personal circumstances into account. Please contact us for advice specific to your business.