What are the warning signs of cash flow problems?

Cash flow problems rarely arrive overnight. They usually show up first as small habits: a supplier paid a week late, a BAS put off, a personal card used for wages. The earlier you notice them, the more choices you have.

Practical warning signs

business.gov.au lists warning signs such as not knowing how much money is coming in or going out, customers often paying late, finding it hard to pay suppliers or debts such as loans or taxes, not being able to pay yourself a salary, and falling sales. ASIC points to growing cash flow pressure, overdue tax or super, unpaid suppliers and relying on personal funds.

In day-to-day terms, watch for these.

Money coming in

• Customers are taking longer to pay, or one large customer owes a big share of your receivables.
• Sales are falling, or margins are shrinking because costs have risen faster than prices.
• You are discounting to bring cash in quickly.

Money going out

• You pay suppliers only after a reminder, or suppliers now want cash on delivery.
• You are at your overdraft or card limit most of the month.
• You are choosing which bills to pay each week.

Tax and super

• You are using GST, PAYG withholding or super money to pay other bills.
• BAS lodgements or super payments are late.
• You are getting letters or calls from the ATO about overdue amounts.

Records and borrowing

• Your books are more than a month or two behind, so you can’t say where you stand.
• You are taking a new loan to make repayments on an old one.
• You are putting personal savings or personal credit into the business to cover wages.

One sign on its own may be a short-term blip. Several at once, or the same one month after month, is a pattern worth acting on.

Step by step

1. Get your figures up to date. Reconcile your bank accounts and bring your books current. You can’t fix what you can’t see.
2. Forecast the next 13 weeks. List expected cash in and cash out week by week. It shows when the tightest point will be.
3. List everyone you owe. Include the amount, the due date and any penalty for paying late. Put tax, super and wages near the top.
4. Collect what you are owed. Follow up overdue invoices now. See what to do when customers pay invoices late.
5. Keep lodging with the ATO. The ATO asks you to contact it, or speak with a tax professional, before your lodgements and payments are due. You may be able to set up a payment plan.
6. Talk to creditors early. business.gov.au suggests explaining your circumstances and asking whether they have hardship arrangements or payment plans. Keep a record of each conversation. ASBFEO advises that any payment you offer should be within your means.
7. Cut costs you can cut quickly. Review subscriptions, stock orders and discretionary spending. See how to improve working capital without borrowing.
8. Get advice. Speak to your accountant, and call the Small Business Debt Helpline for free financial counselling.

Where to get help

• Your accountant, registered tax agent or BAS agent. They can check your numbers, help with a forecast and talk to the ATO for you.
• Small Business Debt Helpline: 1800 413 828. A free service for small business owners in financial difficulty, staffed by qualified financial counsellors. business.gov.au says counsellors can help you understand your business and personal debts, look at payment arrangements with creditors and the ATO, and assess whether the business is viable.
• National Debt Helpline: 1800 007 007. Free financial counselling for personal debts, which often become tangled with business debts.
• Mob Strong Debt Help: 1800 808 488. Free legal advice for Aboriginal and Torres Strait Islander people.
• Rural Financial Counselling Service. Free counselling for farmers, fishers, foresters and related small businesses.
• The ATO. Contact it before your lodgements and payments are due to discuss support options, including payment plans. See ATO payment plans for business.
• ASBFEO (Australian Small Business and Family Enterprise Ombudsman). Helps small businesses in dispute with other businesses or Commonwealth agencies, including over unpaid invoices. Call the information line on 1300 650 460.
• NewAccess for Small Business Owners. Mental health coaching from Beyond Blue, listed by ASBFEO. Money stress is real stress, and looking after yourself helps you make better decisions.

If your business is a company and you think it may not be able to pay its debts as they fall due, ASIC’s guidance is to seek help promptly from a registered liquidator or other qualified adviser. Read when borrowing is not the answer for what that involves.

Important things to know

• Real financial counselling is free. Moneysmart warns that businesses charging fees for this are debt consolidation and refinancing companies, not financial counsellors.
• ATO interest keeps running. The ATO says tax debts on a payment plan continue to accrue the general interest charge (GIC), which compounds daily. You also need to lodge on time and pay new debts, or the plan may default and the full balance become payable.
• Directors have extra duties. ASIC says a company is insolvent when it cannot pay its debts when they fall due, and directors have a duty to prevent the company trading while insolvent. Unpaid tax and super can also lead to a director penalty notice.
• Borrowing is not always the fix. A loan can cover a timing gap. It can’t fix a business that is losing money, and it adds a repayment to your outgoings.
• Delay narrows your options. ASIC’s message to directors is not to ignore warning signs in the hope that things will improve.