Is My Business Actually Profitable?

Profitability isn't measured by whether cash is available — it's measured by whether revenue genuinely exceeds the costs of running the business over a period. But there are two different lenses worth applying here, and it helps to keep them separate. Your accounting profit is the standard measure — revenue less expenses, including genuine accounting costs like depreciation. A second, complementary lens — sometimes called an owner-adjusted or economic view — asks a further question: if you also imputed a realistic wage for your own time, would the business still come out ahead? Money you set aside for an upcoming tax bill is a separate matter again — a cash-flow discipline, not itself a P&L expense — but it's just as important to factor in before deciding how healthy the business genuinely is.

• Timing. Cash sitting in the account today might include next quarter's GST or BAS money — not genuinely spare funds, even though it hasn't yet been paid out and won't reduce accounting profit when it eventually is.

• Debt. A loan draw-down increases your bank balance without representing a single dollar of profit.

• Owner effort left unpriced. Accounting profit for a sole trader doesn't include a wage to the owner — which means the business can look profitable on paper purely because your own labour hasn't been costed in at all. This is where the owner-adjusted view adds something the standard accounting figure doesn't.

• Depreciation and asset use. Equipment wears out. Depreciation is a genuine accounting expense that reflects this — but if the eventual cash cost of replacement isn't separately planned for, profit can still look better than the true long-term picture.

Rather than asking “do I have money available,” a more useful question is:

If I paid myself a fair wage for my time, and set aside what I'll eventually owe in tax, would there still be something left over?

If the answer is yes, comfortably, the business is likely genuinely profitable. If the answer is “only if I don't pay myself properly” or “only if I ignore the tax bill coming,” that's worth taking seriously — it usually means the business is covering its bills, but not actually creating value beyond your own unpaid labour.

A sole trader takes home $70,000 across the year from the business, and feels like things are going well. But she works 55 hours a week, work that would cost roughly $90,000 a year to hire someone to do at a market rate. She hasn't put anything aside for her upcoming tax bill, and her equipment is ageing with no replacement fund building up.

On paper there's cash moving through the business all year. On a genuinely honest measure — pricing her own time properly and accounting for tax and equipment wear — the business may not be profitable at all.

• You're not paying yourself a consistent, realistic amount for your time.

• You regularly feel surprised by a tax or BAS bill rather than expecting it.

• Growth in sales hasn't translated into growth in what's genuinely left over.

• You couldn't currently afford to properly replace your key equipment when it wears out.

• “Busy” and “profitable” have started to feel like the same thing, without you checking whether they actually are.

• What would it cost to pay someone else to do the work I do in the business?

• Have I set aside money for tax, GST and super obligations, separate from day-to-day cash?

• If my key equipment needed replacing tomorrow, could the business afford it without a loan?

• Is my genuine net profit margin — not just my bank balance — growing over time?

• you want a proper answer to whether the business is profitable once your own time and tax are factored in;

• you suspect the business is running on your unpaid labour rather than genuine margin;

• you're deciding whether to keep, grow or exit the business and need an honest picture; or

• you want to build a monthly or quarterly review that tests real profitability, not just cash on hand.

→ Revenue, Gross Profit, Net Profit and Cash — What's the Difference?

→ What Is a Healthy Profit Margin for My Business?

→ How Do I Pay Myself From My Business?

SKC Accounting | Knowledge Centre | Knowledge Guide 013

Last reviewed: August 2026

General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.