Free tool
Split the money before you spend it
Profit, your own pay and the tax bucket come off the top, and the business runs on what is left. Before any of that, two things come out that were never yours: the GST inside the deposit and whatever is already owed to suppliers and subcontractors. That second step is where most versions of this go wrong in Australia.
Cash allocation
Worked from figures entered by the reader. Indicative only, and not advice of any kind.
The plan does not cover what the business costs.
That is not a reason to abandon it. It is the number to work on, and it is better on a screen than found out on the fifteenth of the month.
| Landed in the account | $220,000 |
|---|---|
| Less: GST inside itNever yours. The figure is off your BAS, not worked out here. | -$20,000 |
| Less: materials and subcontractCollected on the way to someone else. | -$60,000 |
| Yours to allocate | $140,000 |
64% of the deposit. Taking your profit percentage off the $220,000 instead would have set aside $11,000, which is money that was already spoken for.
| Bucket | Share | This period | A year of it |
|---|---|---|---|
| Profit | 5% | $7,000 | $84,000 |
| Owner's pay | 20% | $28,000 | $336,000 |
| TaxNot set. Ask your accountant. | 0% | $0 | $0 |
| Debt | 8% | $11,200 | $134,400 |
| Left to run onThe residual, not a budget line. | 67% | $93,800 | $1,125,600 |
The test
- Left to run on
- $93,800
- What running it actually costs
- $98,000
- Difference
- -$4,200
- Over a year
- -$50,400
The usual advice at this point is to cut until it fits. Sometimes that is right. Sometimes it is how a business ends up unable to deliver what it sold, so the gap is given as a number and the decision is left with you.
- The tax percentage is yours to set, from what your accountant or BAS agent has told you. Nothing on this page works out a tax rate, a liability or an instalment, and no figure is suggested for it, because tax is their work and not ours. A default here would be a tax rate with a shrug in front of it.
- Nothing is going to the tax bucket. That may be right for your structure and it is worth being a deliberate answer rather than an unfilled field, because tax that has not been set aside is still owed.
- Of the 220,000 dollars that came in, 140,000 was actually yours to allocate, which is 64 per cent of it. Splitting percentages off the deposit itself would have set aside money that was already committed.
- This plan does not cover what the business costs to run. The gap is real and it is stated in dollars rather than resolved for you: the usual advice is to force the operating costs down to fit, which is sometimes right and sometimes how a business ends up unable to deliver what it sold. Lower a percentage or find the cost. Not both by guessing.
Two things that are not yours
A tenth of it belongs to the ATO before you start.
The method this borrows from was written for a market with no GST. Applied here unchanged, it takes a profit percentage off a deposit that includes tax you are holding for someone else, and a slice of every dollar you collected on the way to a subcontractor. It feels like discipline and it is arithmetic done on the wrong number.
So both come out first. You enter the GST off your own BAS rather than the page working it out, and that is deliberate: this tool computes no tax rate, no liability and no instalment anywhere, and it will not suggest what your tax percentage should be. Tax is your accountant’s work. Not competing with the accountants who send us work is the arrangement this whole firm is built on, and a helpful default in that field would be a tax rate with a shrug in front of it.
What you get instead is the number that matters: how much of what landed was ever yours to divide. On the example below it is 63% of the deposit.
The method
Five steps, and the order is the whole point.
| Step | What goes in | Why it is there |
|---|---|---|
| What landed | Collections for one period, off the bank statement rather than off the invoices. | You cannot allocate an invoice. The whole method runs on money that has actually cleared. |
| Less GST | The figure off your own BAS. Nothing here derives it, and no rate is applied anywhere on the page. | A share of most deposits belongs to the ATO and never belonged to the business. Every percentage taken before this comes off is a percentage of somebody else's money. |
| Less materials and subcontract | Costs that arrived with the job and leave with it. Your own wages and overheads stay in. | A trade collecting $200,000 with $120,000 owed to subcontractors has $80,000 to think about. Allocating off the $200,000 is how a plan fails in the third month. |
| The four buckets | Profit, owner's pay, tax and debt, each a percentage of what is left rather than of the deposit. | Taken off the top, before the business gets a look at it. That ordering is the entire idea and the reason it works. |
| What is left | The residual, set against what the business actually costs to run for the period. | Operating expenses are what remains, not a budget everything else has to fit around. If the residual does not cover the costs, the gap is stated in dollars rather than resolved for you. |
What landed
- What goes in
- Collections for one period, off the bank statement rather than off the invoices.
- Why it is there
- You cannot allocate an invoice. The whole method runs on money that has actually cleared.
Less GST
- What goes in
- The figure off your own BAS. Nothing here derives it, and no rate is applied anywhere on the page.
- Why it is there
- A share of most deposits belongs to the ATO and never belonged to the business. Every percentage taken before this comes off is a percentage of somebody else's money.
Less materials and subcontract
- What goes in
- Costs that arrived with the job and leave with it. Your own wages and overheads stay in.
- Why it is there
- A trade collecting $200,000 with $120,000 owed to subcontractors has $80,000 to think about. Allocating off the $200,000 is how a plan fails in the third month.
The four buckets
- What goes in
- Profit, owner's pay, tax and debt, each a percentage of what is left rather than of the deposit.
- Why it is there
- Taken off the top, before the business gets a look at it. That ordering is the entire idea and the reason it works.
What is left
- What goes in
- The residual, set against what the business actually costs to run for the period.
- Why it is there
- Operating expenses are what remains, not a budget everything else has to fit around. If the residual does not cover the costs, the gap is stated in dollars rather than resolved for you.
A worked example
$198,000 came in. $125,000 of it was yours.
A month for a business with subcontractors on most jobs. The bank statement says $198,000, which is the figure that gets quoted at barbecues and the one it is tempting to allocate from. $18,000 of it is GST being held for the ATO and $55,000 is already owed to the people who did part of the work.
The percentages leave enough to run on.
Profit and the owner get paid first, and what is left still covers what the business costs. That is the whole idea, and most plans do not survive this test on the first attempt.
| Landed in the account | $198,000 |
|---|---|
| Less: GST inside itNever yours. The figure is off your BAS, not worked out here. | -$18,000 |
| Less: materials and subcontractCollected on the way to someone else. | -$55,000 |
| Yours to allocate | $125,000 |
63% of the deposit. Taking your profit percentage off the $198,000 instead would have set aside $9,900, which is money that was already spoken for.
| Bucket | Share | This period | A year of it |
|---|---|---|---|
| Profit | 5% | $6,250 | $75,000 |
| Owner's pay | 18% | $22,500 | $270,000 |
| TaxYour accountant's figure. | 12% | $15,000 | $180,000 |
| Debt | 6% | $7,500 | $90,000 |
| Left to run onThe residual, not a budget line. | 59% | $73,750 | $885,000 |
The test
- Left to run on
- $73,750
- What running it actually costs
- $64,000
- Difference
- +$9,750
- Over a year
- +$117,000
The tax bucket has a number in it because this owner asked their accountant. That is the only way a number gets into that row. The page does not suggest one and does not work one out, and the row says so when it is empty.
What is left after all four buckets is $73,750, against $64,000 of running costs. That is $9,750 of room a month, or $117,000 across the year. The plan holds, which on a first attempt it usually does not.
What this does not cover
- Any tax rate, liability, instalment or BAS figure. Every tax number on this page is one you entered
- What percentages you should use, beyond the observation that a small one you keep beats a large one you raid
- A cash flow forecast. This is about money that has arrived, not money that is coming
- Whether your operating costs are too high, which is a judgement and not arithmetic
- Anything you type. Nothing on this page is sent anywhere or stored
How much should be in the profit bucket before you touch it?
The real profit calculator works out what is genuinely left once a market wage for your own job is in the accounts, and tests the cash you hold against two months of operating costs. It is the page that tells you what these percentages are building towards.
Want the finance arranged as well?
This site does the analysis and the documents, and does not arrange credit. The broking is done by The Lending Lab, a separate business run by the same person. Send a few details and Nick handles it himself.
Common questions
Because that is a tax figure and tax is your accountant's work, not ours. It is also the reason this firm and the accountants who refer us work do not compete. The number is on your BAS, you enter it, and the tool takes it off before anything is divided. What matters here is not the arithmetic, it is that GST sitting in your account was never yours to allocate and a percentage taken off the deposit sets aside money that belongs to the ATO.
We are not going to tell you, and it is not an oversight. It depends on your structure, your instalments and what has already been paid, and a figure suggested on a web page would be a tax rate with a shrug in front of it. Ask your accountant or BAS agent what to set aside, put that number in, and the page will do the rest. The field starts at zero on purpose rather than at a number that looks authoritative.
Because they were never yours either. A builder who collects $200,000 with $120,000 already owed to subcontractors does not have $200,000 to divide, and allocating as though they do is how a plan fails in the third month. Take out what arrived with the job and leaves with it. Your own wages and overheads stay in, because those are what the residual is meant to cover.
The mechanic is: pay profit, yourself and tax first, and let the business run on what is left. That idea is Mike Michalowicz's and it is a good one. What is not here is his allocation table, because it is built on US revenue bands and US tax treatment and has no GST in it at all. An Australian business allocating off a GST-inclusive deposit using percentages designed for a market without GST is not following the method, it is misapplying it.
Maybe. The usual advice at this point is to force the operating costs down until they fit, and sometimes that is exactly right because the costs grew without anyone deciding they should. Sometimes it is how a business ends up unable to deliver what it sold. We give you the gap in dollars, for the period and for the year, and leave the judgement with you. Lowering a percentage is also a legitimate answer.
Smaller than you think, and then move them. A profit allocation you actually leave alone is worth more than a larger one you raid in the second month. The point of the exercise is the habit of taking it off the top rather than hoping for a surplus at the end, and a percentage you can live with builds that habit while an ambitious one breaks it.
Separate accounts, if your bank makes that easy. The reason is behavioural rather than financial: money you can see in the trading account gets spent from the trading account regardless of what a spreadsheet says it was for. Nothing in this tool depends on you doing that, and it works considerably better if you do.
No. A forecast tells you what is coming and when. This tells you what to do with money that has already arrived. They answer different questions and a business carrying debt or growing quickly wants both.
General information only. Indicative, and not taxation advice or a review of your tax position. No tax rate, liability, instalment or BAS figure is calculated or suggested anywhere on this page. Every tax figure here is one you have entered from your own accountant or BAS agent. What to set aside for tax is their advice to give and not ours.