I’d just wrapped my hands around a hot coffee, trying to thaw out from the winter chill, when I got back to my desk. I opened my emails, and there it was, the message that pulled us deep into some ATO debt issues. And just like that, things started to heat up again.
I took on board the client’s email, jumped straight into their Xero file, and started diagnosing the issue.
“Tax is hitting us hard, and we haven’t even been paid by our customers yet. We need a smarter approach to stay ahead of the taxman.”
This frustration is all too common and if you’ve ever felt like the ATO is taking money too soon, you’re not alone.
But here’s the reality: if your business is profitable, this is more likely a cashflow issue than a tax issue.
The Common Trap: Profit on Paper, Pressure in Reality
Many businesses see strong revenue numbers, but cash in the bank tells a different story. Why?
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ATO obligations arrive before the money does – GST and wages tax (PAYG withholding) need to be paid as cash comes in, but your biggest invoices may take months to settle.
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You’re floating the cost of doing business – Paying suppliers, contractors, labour costs, and materials well before seeing revenue.
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Debtor terms can stretch too long – If your biggest clients take 60-90 days to pay, you’re left covering the gap in the meantime.
And here’s the kicker this business, according to the books, does $1.2M in revenue over the last 12 months, with a net profit margin of roughly 13%. That’s a good sign. On paper, things are working.
But despite those numbers, the cash wasn’t lining up. The business was profitable, yet they were feeling the financial squeeze.
Why It Feels Like a Tax Problem (But Isn’t)
After a deep dive, I uncovered the real issue:
✅ Their biggest invoices were the slowest to be paid – often taking 90+ days.
✅ They were covering major costs upfront – suppliers, wages, labour, materials, before getting paid.
✅ They hadn’t actually been hit with company tax yet – the pressure was coming from accumulating BAS (GST and wages tax), not income tax.
At first glance, it seemed like the ATO was taking money too soon. In reality, the challenge wasn’t tax it was cashflow misalignment.
A Smarter Approach: How to Stay Ahead of the Cashflow Squeeze
If any of this sounds familiar, the good news is there are practical ways forward. Here are four key areas where small changes can create big relief:
1️⃣ Tighten Up Debtor Terms & Payment Cycles
Cashflow often stalls at the front door, with invoices going out but payments trickling in.
- Reduce payment terms wherever possible — aim for 30 days max, not 90.
- Invoice upfront or in progress stages — so you’re not carrying the whole job financially until completion.
- Encourage faster payment — offer early settlement discounts or apply late fees where needed.
The goal: shorten the time between finishing the work and getting paid for it.
2️⃣ Separate GST & Tax From the Start
Don’t spend money that was never truly yours.
- For every payment received, move the GST portion to a separate bank account.
- Treat it like payroll, non-negotiable and ring-fenced from operating cash.
- Think of this as “protecting yourself from yourself” and reducing the BAS shock down the track.
The goal: maintain discipline so the ATO isn’t an unwelcome surprise.
3️⃣ Plan for the Gap — Don’t Assume It Will Close Itself
Most suppliers, staff, and tax deadlines won’t wait 60–90 days. So if your income lags, your planning can’t.
- Forecast shortfalls in advance, so you’re not caught reacting under pressure.
- Build up a buffer or working capital reserve to smooth out delayed receivables.
- Avoid overcommitting to jobs with heavy upfront costs unless there’s a decent deposit or staged payment plan in place.
The goal: build resilience into your cash cycle especially when the numbers on paper look good, but the bank balance says otherwise.
4️⃣ Rethink Who You’re Doing Work For
Sometimes, the issue isn’t how you get paid, it’s who you’re getting paid by.
- Are your biggest clients also your slowest to pay or most resource-intensive?
- Are “good” jobs tying up cash and putting strain on your team for too long?
- Would smaller, faster-paying clients be a better fit for your cashflow rhythm?
You don’t need more jobs, you need the right ones.
The goal: make client decisions based on both revenue and cashflow impact.
Final Thoughts: Profit ≠ Cashflow, and the ATO Isn’t the Enemy
When BAS and tax obligations start piling up, it’s easy to feel like the ATO is working against you. But in reality, it’s not the ATO that’s the problem, it’s the timing of money coming in versus money going out.
This business was profitable, but because of the way cash flowed through, it was constantly under pressure. And that’s the reality for so many businesses, profitability and cashflow aren’t the same thing.
The key is shifting your mindset rather than reacting to BAS and tax payments as they arise, smart businesses plan ahead to stay in control.
Need help getting clarity on your cashflow? We offer cashflow forecasting solutions that help businesses stay ahead, not just keep up.
Let’s chat about building a plan that works for you. 🚀
