Practical Indicators Accountants Shouldn’t Ignore

Most businesses don’t wake up one morning and discover they’re insolvent.

The warning signs are usually there long before things reach that point. The problem is that they’re often dismissed as temporary setbacks. A slow-paying customer. A tax debt that will be cleared next quarter. Suppliers are becoming a little more impatient than usual.

On their own, these issues might not mean much. But when they start appearing together, they can tell a very different story.

Accountants are often the first people to spot those patterns. They see the cash flow reports, creditor balances, overdue tax liabilities, and monthly management accounts. They have a front-row seat to what’s happening behind the scenes, sometimes before directors fully appreciate the extent of the problem themselves.

Knowing what to look for can make a significant difference. Early intervention creates options. Waiting until creditors are knocking on the door often limits them.

Below are some of the practical indicators accountants should pay close attention to and why they matter.

When Does a Business Become Insolvent?

A common misconception is that a business is insolvent when it runs out of money.

In reality, the question is much simpler.

Can the business pay its debts when they’re due?

That’s the test. A company may own valuable assets, equipment, property, or stock, but if it can’t meet its financial obligations as they fall due, insolvency may already be a concern.

This is why cash flow is often a more important indicator than profit.

A business can be profitable on paper and still struggle to survive if cash isn’t coming in quickly enough.

1. The Business Keeps Losing Money

Every business experiences difficult periods.

A bad quarter isn’t necessarily cause for concern. Neither is a temporary downturn caused by market conditions, seasonality, or a major investment phase.

What should attract attention is a pattern of losses with no clear path to recovery.

Consider a construction company that has reported losses for several reporting periods. Management continues forecasting a turnaround, but the expected improvement never arrives. Working capital gradually disappears, cash reserves shrink, and creditors begin waiting longer for payment.

The losses themselves aren’t always the problem.

What matters is whether the business has the financial capacity to absorb them.

2. Revenue Looks Healthy but Cash Flow Doesn’t

In our experience acting in external administrations, these indicators are often present well before a formal appointment takes place.

A business may be reporting increasing revenue and meeting sales targets, yet consistently struggling to meet its day-to-day obligations. On the surface, performance appears positive. In reality, the business is under increasing financial pressure.

While revenue continues to grow on paper, cash inflows fail to keep pace. The business begins to rely on delaying payments to creditors, including the ATO, to manage working capital.

Often, the issue lies in how long customers are taking to pay. Revenue may be growing, but if debtor days are stretching from 30 days to 60, 90, or even longer, the business can quickly find itself under pressure.

We’ve seen businesses post record sales while simultaneously struggling to pay wages, suppliers, and tax obligations.

Growth doesn’t always solve cash flow problems. Sometimes it amplifies them.

3. Suppliers Are Waiting Longer and Longer to Be Paid

Most suppliers understand the occasional late payment.

What concerns them is when late payments become the norm.

A business operating on 30-day terms that consistently pays after 60 or 90 days may be doing more than managing cash flow. It may be relying on creditors to fund day-to-day operations.

Accountants should pay attention when creditor balances continue to grow while available cash continues to decline.

This is often an indication the business is relying on creditor support to continue trading, rather than operating on a sustainable cash flow basis.

4. Tax Debts Keep Rolling Forward

Almost every insolvency practitioner has seen the same pattern.

The BAS gets lodged, but not paid.

A payment arrangement is put in place with the ATO.

The arrangement falls behind.

Another arrangement is negotiated.

Then the cycle repeats.

A one-off tax debt isn’t necessarily a warning sign. Businesses face unexpected challenges all the time.

The concern arises when overdue GST, PAYG withholding, superannuation, or other tax liabilities become a recurring feature of the business rather than a temporary issue.

When tax debts continue growing month after month, it’s often worth asking whether the business has a broader cash flow problem that isn’t being addressed.

Where tax debts continue to increase with no clear strategy for repayment, it is often an indication that the business is no longer able to service its obligations in the ordinary course.

In these circumstances, directors should be aware that continued trading may expose them to potential insolvent trading risks, particularly where liabilities such as PAYG withholding and superannuation remain unpaid for extended periods.

Early engagement at this stage often preserves restructuring options, including informal workouts or Small Business Restructuring. Delayed action, however, can significantly limit available outcomes and reduce returns to creditors.

5. When Should Action Be Taken

Identifying individual warning signs is important. However, insolvency may already exist.

In our experience, it is the combination of indicators that matters.

For example:

• Ongoing trading losses combined with increasing creditor balances
• Strong revenue growth alongside deteriorating cash flow
• Repeated ATO payment arrangements that continue to fall into arrears

When multiple indicators are present, it is critical that the company’s financial position is reviewed holistically.

Directors should be asking:

• Can the business realistically meet its obligations over the next 3 to 6 months?
• Is the business relying on creditor support to continue trading?
• Are there viable restructuring options available, or is an orderly wind-down more appropriate?

Importantly, the earlier these questions are addressed, the more options are typically available.

Seeking advice at an early stage may allow:

• Informal restructuring or cost reduction strategies
• A Small Business Restructuring plan
• A controlled voluntary administration process

Conversely, where action is delayed, options may narrow to liquidation, often with reduced returns for creditors and increased exposure for directors.

Where there is uncertainty as to solvency, obtaining early advice can materially improve outcomes for directors and creditors alike.