When a business tips into insolvency, it rarely happens overnight.
More often, the warning signs have been flashing for months, sometimes years, but no one has joined the dots.
As accountants and advisors, you and your staff are in the box seat. You see the books, the BAS, the payroll data, the creditor balances, often before anyone else does. That means you are in a unique position to spot trouble early, raise the flag, and give your clients a fighting chance to turn things around.
The courts have long recognised a set of indicators of insolvency (ASIC v Plymin [2003] VSC 123). These same indicators are what liquidators and judges rely on when deciding whether a company was insolvent.
Here is a practical version of that checklist for you and your team. If you tick three or more boxes, it is time to act.
Early Warning Signs Checklist
Financial Health
- Accounts are late or messy each quarter
- Ongoing trading losses showing up
- Working capital shrinking or negative
- Liquidity ratios below 1 (if available)
- No budgets or cash-flow forecasts in place
- Books need constant "clean-up" before BAS or tax lodgements
Cash-Flow & Payments
- BAS, PAYG or super consistently behind
- Payment arrangements with ATO or major suppliers becoming routine or defaulting
- Trade creditors' balances creeping up month by month
- Payments made in minimum amounts or rounded figures
- Overdraft always maxed out or constant requests for new loans (including related parties)
- Inability to raise further equity capital
- Dishonoured payments appearing
Creditors & External Pressures
- Suppliers switching to COD or pre-payment
- Statutory demands, legal threats, or debt-collector letters arriving
- Bank tightening limits, reviewing facilities, or mentioning covenants
- Key customers slowing payments or reducing orders
People & Culture
- Director or shareholder disputes happening
- High staff turnover or key people leaving
- Management avoiding financial discussions or "hoping things improve"
- Maintenance, training, or IT upgrades put on hold
Soft Signs
- Clients slow to send information or avoiding calls
- Meetings regularly cancelled or pushed back
- Clients appear stressed, defensive, or distracted
- Large personal drawings while the business is under cash pressure
Why This Matters
Catching these signs early is critical. Once statutory demands are served, the ATO issues Director Penalty Notices, or, once the cash has truly run out, the choices narrow fast.
By raising these red flags early, you give the business time to act. That might mean preparing proper forecasts, negotiating with creditors, or looking at Small Business Restructuring (SBR) or voluntary administration while there is still a viable business to save.
Early intervention can mean the difference between:
- Saving jobs vs closing the doors
- Minimising directors' exposure through DPNs or insolvent trading claims
- Keeping a client (and retaining future fees) vs losing them entirely when the business fails
- Directors staying in control through a restructure vs losing control to a liquidator.
The Takeaway
Your role, and your staff's role, goes beyond preparing numbers. It is about recognising when the numbers are telling a story, asking the right questions, and guiding clients towards the help they need.
Should you like a copy of our checklist - so it is easily accessible for you and your clients. Please email marketing@worrells.net.au for a copy.
If you are ticking multiple boxes, take it as a prompt to pause, reflect, and start a conversation with your client about the options available.
Contact Us
Worrells works with accountants every day to help businesses act early and get the best outcome possible, whether that is a Small Business Restructure, voluntary administration, or just a plan to get back on track.
If you are seeing these warning signs in your clients, talk to us.
The earlier we are involved, the more options we have to keep businesses trading and protect directors from unnecessary risk.
Contact your local Worrells office for a confidential discussion. No obligation, just practical advice.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
