Most published data on Australian SME finance comes from lending surveys, ATO aggregate statistics, or software vendor reports. It tells you what's happening across the economy. It doesn't tell you what's happening inside the books.
This report is different. It reflects what Scale Suite sees when we embed finance teams inside growing Australian businesses. The patterns here come from onboarding new clients, cleaning up Xero files, lodging overdue BAS, chasing debtors, and sorting out payroll tax registrations that should have been done two years ago. If you run a growing business with a small team, this report is a sanity check. Use it to benchmark your own finance function, identify where you might be exposed, and decide what to prioritise.
These findings are drawn from Scale Suite's work with Australian small and medium businesses across services, trades, technology, hospitality, and professional sectors. All figures are indicative as at 2025-26. Where our operational observations align with publicly available data, we've noted the consistency.
This is not a formal survey and we haven't fabricated a sample size to make it sound like one. These are practical observations from embedding finance teams inside growing businesses and seeing the real state of their books. The patterns are consistent enough across engagements that we're confident publishing them.
Industry-level statistics referenced throughout are consistent with findings from the ATO, CreditorWatch's Business Risk Index, Dext's Australian SMB research, and the ScotPac SME Growth Index. We are not claiming to have independently replicated that research. We are saying that what we observe inside individual businesses matches the aggregate picture those reports describe.
This is the finding that surprises nobody and yet changes everything once it's addressed.
A common pattern observed during initial engagement is business owners spending 8 to 12 hours per week on finance tasks. That includes reconciling bank accounts, chasing invoices, preparing for BAS, managing payroll queries, and responding to ATO correspondence. Research from Dext's 2025 "Built for Bigger Things" report, based on a survey of 500 Australian SMB leaders, found that 21 per cent of business owners spend 21 to 40 hours per month on financial admin alone. Forty per cent reported spending more time on finance than on growing their business. Perhaps most telling, 42 per cent said they had missed business opportunities because of time lost to admin.
Only 40 per cent of Australian SMBs use an external accountant or bookkeeper for ongoing operational support. The rest are doing it themselves, often without realising how much time they're actually spending.
Business owners consistently report that after dedicated finance support is in place, time spent on finance tasks drops significantly, often to under two hours per week, limited mostly to approvals and decision-making. The hours recovered aren't theoretical. They're redirected into sales, client work, hiring, or simply not working weekends on bank reconciliations.
The reclamation of this time is often the most immediate and tangible return when a business implements a dedicated finance function.
This section explains a large part of why owners spend so much time on finance. The tool they're relying on isn't configured to do its job properly.
In our experience onboarding new clients, the majority of Xero files require significant reconfiguration before they produce reliable financial data. The most frequent issues fall into two categories: poor initial setup and a lack of ongoing process.
On the setup side, businesses commonly run the default chart of accounts without customisation. GST tax codes are frequently incorrect, particularly the confusion between BAS Excluded and GST on Expenses for mixed-use items. Bank feeds are often connected for the primary account but missing for credit cards, PayPal, loan accounts, or secondary bank accounts. The GST reporting basis, whether cash or accrual, is sometimes set incorrectly in the financial settings and left unchecked for years.
On the process side, receipt management is rarely in place despite tools like Hubdoc being included with most Xero subscriptions. Tracking categories are either unused or misused for job-level tracking they weren't designed for. The General Expenses account tends to be inflated because owners avoid creating specific expense codes, making profit analysis unreliable. And in a surprising number of cases, the business owner's own Xero file is owned by their accountant's subscription, restricting what the owner can see and do in their own accounting system.
These aren't cosmetic issues. Incorrect GST codes affect BAS accuracy. A bloated General Expenses line hides real cost trends. Missing bank feeds mean reconciliation is manual when it should be automatic. A business running on incorrect settings for 18 months doesn't just have a messy file. It has potentially inaccurate BAS lodgements, questionable profit figures, and a cleanup job that takes significantly longer than proper setup would have.
The ATO issued $935 million in failure-to-lodge penalties in the 2024 financial year, a 40 per cent increase from 2023. Of those who sought remission, only 18 per cent were successful, down by half from the prior year. The ATO has stated publicly that it is placing stronger emphasis on BAS compliance and that businesses with a history of late lodgement will face reduced leniency, regardless of whether the lodgement results in a refund.
For small entities, the penalty is $313 per 28-day period the document is overdue, up to a maximum of $1,565. For medium entities with turnover between $1 million and $20 million, it doubles. These are not large numbers individually, but they compound when a business falls behind across multiple quarters.
A common pattern observed during client onboarding is businesses being one or more quarters behind on BAS lodgement. Many don't realise penalties have already been applied until their BAS agent logs in and reviews the ATO portal. The trigger is often a growth phase: a business that was "getting by" on its own suddenly crosses the $75,000 GST registration threshold, takes on staff, or wins a large contract that changes the volume and complexity of transactions. The transition from informal to regulated finance is where most issues emerge.
The real cost isn't the penalty itself. It's the compound effect. General interest charge runs at approximately 11 per cent per annum on unpaid amounts, calculated daily. Add the management time spent dealing with ATO correspondence, sorting through lodgement backlogs, and reconciling records that should have been maintained throughout the year, and the true cost of a late BAS is significantly higher than the penalty notice suggests.
Cash flow pressure among Australian SMEs has intensified. CreditorWatch's Business Risk Index found that B2B payment defaults more than doubled over the twelve months to early 2025, reaching their highest level since March 2021. Business insolvencies rose 57 per cent in the same period. Late payments are not just an inconvenience for the businesses waiting on them. They are a leading indicator of whether those paying late will survive the next twelve months.
Across the businesses we work with, debtor days at the point of engagement typically sit between 45 and 65 days, depending on industry. Services businesses and trades tend to be at the higher end. Construction is frequently worse. Many owners have no active debtor management process in place beyond sending invoices and hoping for payment. There's no structured follow-up cadence, no escalation process, and often no clear picture of how much is outstanding at any given time.
The gap between standard payment terms of 14 to 30 days and actual collection of 45 to 65 days represents real working capital locked up. For a business turning over $3 million with 55-day debtor days, that's roughly $450,000 in receivables outstanding at any given time. That figure is calculated on revenue inclusive of GST, because that's the amount sitting in the debtor ledger. It's money the business has earned, often already spent to deliver the work, and is now waiting to collect.
When debtor management is implemented as part of a structured finance function, with weekly reviews, consistent follow-up, and escalation at defined intervals, debtor days typically compress within the first two to three months. The improvement in working capital is often the first measurable financial impact a business sees from dedicated finance support.
This is the least understood compliance area for growing businesses, and the one where we find the most significant financial exposure.
Payroll tax is administered at state and territory level, with each jurisdiction setting its own rate and threshold. NSW applies a rate of 5.45 per cent above a $1.2 million threshold. Victoria's threshold increased to $1 million from 1 July 2025, with the deduction phasing out entirely for businesses with total Australian wages above $5 million. Queensland, Western Australia, South Australia, Tasmania, the Northern Territory, and the ACT all apply different thresholds and rates. Several states have introduced surcharges in recent years that push effective rates beyond the standard 5 to 6 per cent for larger payrolls.
Revenue NSW conducted over 11,000 payroll tax audits in the 2024 financial year against approximately 39,000 registered businesses. That is roughly one in four businesses facing audit scrutiny in a single state in a single year.
A business that starts in one state and expands to employ people interstate often doesn't adjust its payroll tax calculations. The threshold isn't per-state. Total Australian wages determine the threshold proportion allocated to each jurisdiction. For example, consider a business with $3 million in total Australian wages, with $900,000 paid in NSW. Their NSW payroll tax threshold isn't the full $1.2 million. It's calculated proportionally: $900,000 divided by $3 million, multiplied by $1.2 million, equals $360,000. If that business has been applying the full $1.2 million threshold, it has an underpayment building.
We regularly encounter businesses overpaying in one state while being unregistered in another, or applying the full state threshold when they're only entitled to a proportional share. Wages are attributed based on where the work is performed, not where the employee is paid from, which adds another layer of complexity for businesses with remote workers or interstate project sites.
From initial engagement to first clean BAS lodgement, the typical timeline is three to four weeks for businesses with reasonably maintained records. For businesses with a backlog of unlodged BAS or significant Xero cleanup required, this extends to six to eight weeks.
The first month is almost entirely focused on cleanup: correcting bank reconciliations, fixing chart of accounts issues, resolving outstanding ATO items, and establishing a weekly rhythm for transaction processing. It is rare to find a business where the finance function is simply a matter of maintaining what's already in place. There is almost always a cleanup phase before steady-state operations can begin.
After the initial period, ongoing monthly finance operations settle into a predictable pattern: weekly transaction processing, monthly reconciliation and reporting, quarterly BAS preparation and lodgement, and ad hoc support for payroll, invoicing, or compliance queries. The businesses that make this transition well tend to be the ones that commit to a consistent weekly rhythm rather than letting work pile up between quarters.
For a detailed comparison of how different finance support models handle this transition, see our service comparison page where we break down the specific scope, cost, and trade-offs of each option.
What are the most common finance problems for Australian SMEs?
Excessive owner time on admin, misconfigured accounting software, late BAS lodgement, high debtor days, and payroll tax compliance gaps are the most consistent issues across growing businesses. They tend to appear in that order: the owner notices the time problem first, and the compliance and cash flow issues emerge once someone actually looks inside the books.
How many Australian businesses lodge BAS late?
The ATO issued $935 million in failure-to-lodge penalties in the 2024 financial year, a 40 per cent increase from 2023. For growing businesses without dedicated finance support, late lodgement is more common than most owners expect. The ATO has signalled it will continue to enforce penalties regardless of whether the lodgement results in a refund.
What are average debtor days for Australian small businesses?
Industry-wide figures sit above 50 days. For services and trades businesses, 45 to 65 days is common at the point they engage professional finance support. CreditorWatch data shows B2B payment defaults more than doubled in the year to early 2025, indicating the problem is worsening.
How much time do business owners spend on bookkeeping and finance?
Research from Dext found that 21 per cent of Australian SMB owners spend 21 to 40 hours per month on financial admin. In practice, 8 to 12 hours per week is common for owners managing their own books before they get dedicated support.
What are common Xero setup mistakes?
Incorrect GST codes, unmodified default chart of accounts, missing bank feeds for secondary accounts, incorrect GST reporting basis, and no receipt management process are the most frequent issues found during Xero file reviews. The majority of files require significant reconfiguration before they produce reliable data.
How long does it take to clean up messy business books?
For businesses with reasonably maintained records, three to four weeks to first clean BAS lodgement. For businesses with significant backlogs, six to eight weeks is more realistic. The first month is primarily cleanup before steady-state operations begin.
Are payroll tax audits common in Australia?
Revenue NSW alone conducted over 11,000 payroll tax audits in the 2024 financial year against approximately 39,000 registered businesses. Multi-state businesses face the highest compliance risk, particularly around proportional threshold calculations and wage attribution rules.
Scale Suite provides embedded finance teams for Australian SMEs. Our model pairs Australian CA-qualified oversight with dedicated finance analysts who integrate into your business daily, not monthly email check-ins. Services range from core bookkeeping and BAS through to payroll management, financial reporting, and fractional CFO support. If the patterns in this report look familiar, a conversation with our team is a good place to start.
We review and update this report periodically to reflect current data and operational experience. All figures and findings are accurate based on available information and our direct client work at time of publication. This report does not constitute financial advice. Businesses should consult qualified professionals for advice specific to their circumstances.
Scale Suite delivers embedded finance and human resource services for ambitious Australian businesses.Our Sydney-based team integrates with your daily operations through a shared platform, working like part of your internal staff but with senior-level expertise. From complete bookkeeping to strategic CFO insights, we deliver better outcomes than a single hire - without the recruitment risk, training time, or full-time salary commitment.
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