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How Much Can a Small Business Make Before Paying Taxes – A Simple Guide

The most frequently asked question among people who want to venture into business is – How much can a small business make before paying taxes? A valid question, no doubt. After all, you do not intend to run a charity, do you?

Well, the truth is, there isn’t one specific answer to this question. A business has several moving parts and no two businesses – even those operating in the same industry, make the same amount of money.

Naturally, you would expect a company that’s been around for a decade to make more than one that’s still in its infancy stages. In the same breath, businesses that invest heavily in innovation and technology solutions are bound to generate more income than those that don’t.

This article explores everything you need to know about how businesses make money and tips you can adopt to improve your company’s profitability. Let’s dive in.

Disclaimer: This is not professional tax advice, please consult a professional for advice with your specific business.

Managing Cash Flow to Boost Income – The Basics

Cash flow – the heart of every thriving business. It refers to the money that comes into your business in the form of revenue, and out of it in the form of expenses. Now, it’s easy to see how things could go awry if you don’t master the fundamentals of excellent cash flow management.

Even the most profitable business can fail if it doesn’t have cash flow management down to a tee. Without enough money available to pay your suppliers or lenders, suppliers will instantly cut you off, and banks may foreclose.

The first thing you’re going to need is a cash flow statement to estimate the total amount of money coming into and out of your business. To do this, you’ll need to record the following amounts every month.

  • Total cash inflow for the month – This includes revenue streams from monthly sales, asset sales, interest revenue, capital injections from lending sources, etc.
  • Total cash outflow for the month – This includes both capital and recurrent expenditure such as equipment purchases, supplies, loan payments, overheads, etc.
  • Net cash flow – This is the difference between the total inflows minus the total outflows. A negative figure tells you that there’s more money going out than there is coming in.
  • Opening balance – This is the total cash you have at the beginning of the month.
  • Closing balance – Add your net cash flow to your opening balance. This tells you how much money you have at the end of the month in question.

Tips to Improve Your Business’ Cash Flow

Now that you understand how cash flow works, the next thing you need to consider is how to improve it and avoid a scenario where you have more money leaving your business compared to what’s coming in.

Here are 5 things you can do to improve your business’ overall financial position.

1. Keep an Eye on Your Stock Levels

You need enough stock to ensure that customers get the products they need when they need it. But, not too much that it ties up your cash effectively driving up your storage and insurance costs. Efficient inventory practices ensure that you keep stock at optimum levels.

2. Manage Your Business’ Accounts

You need to develop effective ways of managing debtors. Ensure that you follow up on overdue accounts and put good credit policies in place to keep the cash coming in.

Another helpful practice you can adopt involves negotiating for longer payment terms with your suppliers. It reduces the likelihood of going out-of-pocket to pay them when you encounter unprecedented delays with your customers.

3. Boost Income

One way to increase your business’ bottom line would be to scale your operations by venturing into new markets. It may involve opening more branches in different parts of town, or an entirely different state or territory.

However, you will need to check that you have the financial muscle to do it. It also needs to be feasible; otherwise, it may turn into an infinite money pit.

Additionally, review your advertising and marketing campaigns. If your efforts are paying off and it is drumming up more customers for your business, then keep doing what you’re doing.

4. Reduce Overheads

This is a no-brainer. Cutting down on unnecessary expenses by adopting efficient, low-cost alternatives for your operations is guaranteed to reduce the amount of cash leaving your business.

For instance, you could look into ways of cutting down on your power and water bills by adopting environmentally-friendly solutions to reduce energy demands and wastage.

5. Review Your Transaction Methods

Look into using the right kind of financial products that give you access to your money quickly. Find services that allow you to make and take payments online or through mobile devices.

How Much Can a Small Business Make Before Paying Taxes

According to a 2019 report from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), small businesses in the country make up 98.45 per cent of all businesses.

About half of these have an annual turnover of less than $200,000. Here’s a breakdown of how much they make.


Annual turnover No. of Businesses % of businesses
$0 – less than 572,826 24.8%
$50,000 – $199,999 792,373 34.3%
$200,000 – $1,999,999 787,685 34.1%
$2,000,000 – $4,999,999 92,126 3.9%
$5,000,000 – $9,999,999 32,483 1.4%
$10,000,000 or more 35,798 1.5%
Total 2,313,291 100%

According to the same report, the top 5 small business sectors that make the most amount of money based on their overall contribution to the country’s Gross Domestic Profit (GDP) are as follows.

Industry Sector Small Business GDP (Billions) % of Small Business GDP
Fishing, forestry, and agriculture $24.1 75%
Real estate, rental and hiring services $61.5 74%
Construction $71.7 57%
Professional, technical, and scientific services $58.2 46%
Accommodation and food-related services $16.2 38%

Remember, the turnover of a business is not to be confused with its profit. The turnover refers to the total business income over a given period and is also referred to as the “net sales” figure. It is what your business makes before deducting any expenses – some of which include paying taxes.

Profit, on the other hand, refers to the earnings left over after deducting the expenses.

Set Realistic Goals and Do the Work

So, how much can a small business make before paying taxes? Well, it all depends on how well you manage your cash flow, and the industry you’re in.

It is worth noting, however, that approximately half of all the small businesses in Australia have an annual turnover that’s less than $200,000. That should give you a rough idea of what to expect depending, of course, on the industry sector you’re getting into.

So, set realistic targets and be prepared to do the work. Your passion and commitment to your business will reflect in its bottom line.

Either way, if you need an unsecured loan for your small business, our online tool will connect you with 70+ non-bank lenders to get you the cash you need in as little as 2 minutes!

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