Quick answer
Assessors read three statements: the profit and loss (what the business earned and spent), the balance sheet (what it owns and owes at a date) and the cash flow (how money actually moved). They circle revenue trends, margins, tax and super owing, loans from directors, debtors and total debt. Read yours first, mark anything odd and prepare one-line explanations.
Key points
- Three statements: profit and loss, balance sheet, cash flow.
- Assessors circle trends, margins, tax owing, director loans and debtors.
- Profit and cash often differ; know why before you are asked.
- Prepare one-line explanations for every odd number.
Why read your own financials first?
Because the first person to ask “why is that number so high?” should be you. Owners often file financial statements without reading them closely. Accountants prepare them for tax, not for lenders, and some of the numbers that matter most to an assessor are the ones that matter least at tax time.
If you read yours as an assessor would, you spot the questions in advance. Each question you can answer in a line is one fewer round of emails.
What are the three statements?
| Statement | Question it answers | Covers |
|---|---|---|
| Profit and loss | Did the business make money? | A period (year, quarter, month) |
| Balance sheet | What does it own and owe? | A single date |
| Cash flow | Where did the money actually go? | A period |
business.gov.au describes the cash flow statement in plain terms: opening balance, cash incoming, cash outgoing, monthly balance and closing balance. Its free template is a good place to see the logic even if your accountant prepares the formal versions.
What do assessors circle on the profit and loss?
Four things, usually in this order.
- Revenue trend. Up, flat or down over two or three periods. A fall needs a reason; a surge needs to be real.
- Margins. What is left after the direct costs of delivering the work. A margin that moves suddenly suggests pricing or cost changes.
- Wages and rent. The biggest fixed costs, which decide how much room there is when revenue dips.
- Net profit. After everything, and compared with what the owner draws.
Note any line that jumped. A one-off cost, a large write-off or an unusually good year should be captioned. “Includes a one-off equipment repair” costs nothing to write.
What do assessors circle on the balance sheet?
| Line | Why it matters |
|---|---|
| Cash at bank | Immediate buffer |
| Debtors | Money owed to you, and how old it is |
| Stock | Cash tied up in goods |
| Fixed assets | Equipment, vehicles, property |
| Tax and super payable | Whether obligations are current |
| Loans (to and from directors, to lenders) | Who funds the business |
| Net assets | The cushion, after all debts |
Two lines surprise owners. First, tax and super payable are read as signals of discipline; a large balance sitting there says something about cash management. Second, loans from directors show whether the owner is propping the business up or drawing it down. Neither is wrong, but both should be explained.
How does the cash flow statement fit?
It is the tiebreaker. Where profit looks healthy and the bank balance is thin, the cash flow shows why: stock purchased ahead, customers paying late, a vehicle bought outright. Where profit looks thin and the bank is healthy, it shows the opposite: prepayments, deposits received, deferred costs.
Assessors use it, or the bank statements that stand in for it, to judge the room left each month. The method is explained in serviceability in plain English.
Illustrative example. A landscape supplier shows a solid profit and a modest bank balance. The balance sheet reveals the reason: debtors have grown, because two large commercial customers pay at 60 days. A two-line note in the pack says exactly that, with the ageing report attached. The assessor sees a cash cycle, not a problem.
How do I connect the statements to BAS and bank?
At the end of the year, revenue on the profit and loss should be explainable from four BAS quarters and the year’s deposits, with the usual adjustments for GST and timing. The comparison is called the three-way match, and the page on it shows how to write a short reconciliation note.
For companies, the numbers also tie to the ASIC and ATO records described on the company pack page. The ATO notes that a company is responsible for its own tax and lodges its own return, so the profit and loss and the return should agree in broad terms.
What odd numbers should I prepare lines for?
Make a short list as you read.
- A sudden change in revenue or margin.
- A large one-off cost or income.
- A growing debtor or tax balance.
- A loan from or to a director.
- Depreciation or write-offs that make profit look lower than cash.
- A new asset that changed the balance sheet.
For each, write a single sentence of explanation. Keep the list with the statements, ready for the cover note.
When should I do this?
Right after your accountant finalises the year, which is also the natural moment to tidy records for tax. The EOFY guide builds this into the year-end routine. If your accounts are not finalised, a management report from your accounting software with the date range visible is a reasonable stand-in, as long as it is labelled unreviewed.
What ratios should I know, without becoming an accountant?
Three simple comparisons cover most of what an assessor does by instinct. You can do them on the back of an envelope.
- Trend: is revenue rising, steady or falling across the periods you have? Direction matters more than any single figure.
- Margin: after the direct costs of delivering what you sell, how much is left, as a share of revenue? A margin that moves sharply from one period to the next calls for an explanation.
- Coverage: after paying everything the business needs to pay, including existing debts, is there room left in a typical month? This is the question under every application.
Do not worry about the formal names. The aim is to see your numbers as a pattern, not as a list. If you can say, in a sentence each, which way revenue is moving, why margin changed and what is left after commitments, you have done most of the assessor’s thinking for them.
What does the assessor compare your financials against?
Other documents, mainly. Financial statements are one view of the business; BAS lodgements, bank statements and the ATO account are other views of the same business. An assessor puts them side by side and looks for agreement. Revenue in the statements should be in the neighbourhood of the turnover reported in BAS, allowing for timing, GST treatment and accruals. Cash movements in the bank should be consistent with the pattern of the profit and loss.
Differences are not a problem in themselves; unexplained differences are. A timing gap, such as invoices raised at the end of a quarter and paid in the next, is easy to explain in a line. A gap you cannot explain is the one that draws questions. The page on the three-way match walks through this comparison in detail.
How do I explain a loss, or a weak year?
Plainly, and with a direction. A loss is not a disqualifier by itself. It becomes a problem when it is unexplained or when nothing suggests the trend is changing. Say what caused it: a one-off cost, a lost customer, a growth investment, a slow season. Then say what has happened since: new work, reduced costs, a changed price list.
Evidence matters more than adjectives. A signed contract, a forward order book or three months of better statements counts for more than “things are looking up”. If the weak year is behind you, show the later months. If it is not, say what the plan is and what the lender is being asked to fund.
Illustrative example. A fabrication business shows a loss in the year a major customer left. The owner’s note names the loss of the customer, lists two replacement contracts with start dates and attaches the first month’s invoices under the new contracts. The loss is still visible, but so is the recovery.
What should I ask my accountant before I send anything?
Five questions are enough. Are these the final figures or a draft? Are there any unusual items I should be ready to explain? How was stock valued and what depreciation was used? Are any related-party amounts included? Is there anything in the notes to the accounts that a reader might misunderstand? Write the answers down and keep them with the file. They turn your accountant’s knowledge into something a stranger can read, which is exactly what a loan file needs.
Ready to lodge?
Once you have read your numbers and written your lines, lodge a free enquiry. It takes about a minute, involves no credit check at this stage, and goes to a real person, not a crowd of lenders.
Complete the form accurately, particularly your trading history, structure and the amount. Those answers anchor the first conversation, and your annotated financials are ready for the moment they are requested.
Frequently asked questions
Do I need formal financial statements to apply?
Not always. Many applications rest on tax returns, BAS and bank statements, and some use management reports from accounting software. A specialist will say what is needed. If you have accountant-prepared statements, they help.
What is the difference between profit and cash flow?
Profit is revenue less expenses for a period, usually on an accounting basis. Cash flow is the movement of money in and out of the bank. A business can be profitable and short of cash, for example when customers pay late.
What is a loan from a director?
Money the owner has put in or taken out of the company. It appears on the balance sheet. Assessors look at its size and direction because it shows how much the owner funds, or draws from, the business.
Why do assessors care about debtors?
Debtors are money owed to you. A large or ageing debtor balance can mean future cash that is slow to arrive, which feeds directly into the room left to carry a repayment.
Where can I find a free cash flow template?
business.gov.au publishes a free cash flow statement template with a guide to using it, covering opening balance, cash in, cash out and closing balance.