Busy But Not Profitable: Where the Money Actually Goes in a $1.5M Business
Six places the profit hides, and how to check all of them in an hour.
You have just had your best revenue year and written yourself the smallest cheque in three years. The team is flat out, the phone does not stop, and you cannot work out where any of it went.
The money has not vanished. It is somewhere specific.
Why is my business busy but not profitable?
Because revenue grew and margin did not, and in a business turning over $1.5M there are only about six places that gap can be hiding. Almost every owner I speak to assumes it is spread thinly across everything, and almost every time it turns out to be one or two things carrying most of it.
Here is why that matters. A $1.5M business running a 6% net margin makes $90,000 a year. One point of margin on that revenue is $15,000. So if two of these six are costing you a point each, that is $30,000 a year sitting in the business that you are not being paid.
The six places the money goes
1. Pricing that has not moved while costs have
Australian small business costs are up 24.6% since March 2020. Insurance alone is up 51.7%. If your prices have gone up 8% or 10% in that time, you have absorbed the difference, and absorbing it is a decision even when nobody makes it out loud.
How to check: pull your price list from 2020 and put it next to today's. Then do the same with your three biggest cost lines.
2. One product, division or location losing money inside a profitable total
This is the most common one and the hardest to see. Your P&L gives you a total. The total is the average of a few things earning well and something else quietly bleeding.
How to check: split last year's revenue and direct costs by product, division or location. If you have never done this, do this one first.
3. Cost of sales creeping up a percentage point at a time
Suppliers do not send a letter saying margins are being reduced. They adjust, you approve the invoice because you are busy, and three years later your gross margin has moved four points and nobody noticed the day it happened.
How to check: gross margin as a percentage, this year against three years ago. Not in dollars. Dollars go up while percentages go down, which is exactly how this hides.
4. Customers who cost more to serve than they pay
Research consistently finds that between 30% and 50% of customers are unprofitable once you count what it actually costs to look after them. The ones that cost you are rarely the ones you would guess.
How to check: list your top ten customers by revenue. Beside each, write an honest estimate of hours. Then look at the two lists together.
5. Overheads added in a good year and never removed
Subscriptions, a vehicle, a role created during a boom, the storage unit nobody has opened since 2023. Individually small. Collectively, often a point of margin.
How to check: print twelve months of bank transactions and go down them with a pen. It takes 40 minutes and it is always worth it.
6. Owner time spent on work that does not earn
If you are doing $35 an hour work for 20 hours a week, that is not free. It is the most expensive labour in the business, because the work only you can do is not getting done.
How to check: log your week in 15-minute blocks for five days. Then mark each entry: only me, or someone else.
Why can I not see this from the inside?
Because your accounts are built to report a total, and every one of these six problems hides inside a total.
Your P&L is designed for tax and compliance. It is honest and it is accurate and it will never tell you that the catering division lost $40,000 while the main business made $130,000. Both numbers are inside the one figure you get shown, and the figure looks fine.
I have to say, this is the part owners find hardest to accept. You are not missing this because you are not paying attention. You are missing it because the report you are looking at is not designed to show it to you.
The 60-minute version you can do this week
Do not try to do all six. Do the second one.
Take last financial year. Split revenue and direct costs by product, division, or location, whichever way your business naturally divides. Put it in a spreadsheet with four columns.
| Division | Revenue | Direct costs | Gross profit | % |
|---|---|---|---|---|
| Division A | $820,000 | $492,000 | $328,000 | 40% |
| Division B | $410,000 | $299,000 | $111,000 | 27% |
| Division C | $270,000 | $246,000 | $24,000 | 9% |
| Total | $1,500,000 | $1,037,000 | $463,000 | 31% |
Illustrative figures.
That total of 31% looks acceptable. Division C is the reason you are working weekends, and on the standard report you would never see it.
Most owners have never built this table. It takes about an hour with a bank statement and a sales report, and I have never seen it produced without something surprising falling out of it.
Example: the number nobody was going to hand me
When we bought Aquaduck in 2018, my brain went into overdrive. I sat up at night writing lists of the million and one things we could improve, and most of them were not worth doing.
The accounts told me what the month did. They did not tell me net profit per passenger, because that is not what accounts are built to tell you. Once we started looking at that one number, we knew which decisions actually mattered. Net profit per passenger went up 200%.
Nobody was going to give me that number. I had to go and build it.
In conclusion
Busy and profitable are different things and the gap between them is measurable.
One point of margin on $1.5M is $15,000 a year, every year.
The problem is almost never spread evenly. It is one or two things.
Your P&L reports a total, and every one of these six problems hides inside a total.
If you only do one thing this month, split your revenue and direct costs by division. One hour, one spreadsheet.
If you do that and the answer is not obvious, that is what a Business Analysis is for. It runs the same exercise across twelve profit levers, uses your real numbers, and tells you what each fix is worth in dollars.
Call me at 0491 729 043, or book a conversation at sarahcolgate.com.au.