TLDR: Early signs of insolvency typically appear in a client’s behaviour before they are reflected in the accounts. Patterns such as postponed meetings, late records, selective creditor payments, and a growing ATO balance are key indicators. If identified early enough, viable businesses retain restructuring options. If addressed too late, most options are no longer available.
You can often identify clients in difficulty before financial statements reflect their situation. Early signs of financial distress include avoidant, defensive, or deflective behaviour in client interactions.
Once the client’s position has deteriorated, their accountant is often left explaining why limited options remain.
SALEA Advisory manages restructures and administrations across Australia, and the warning signs typically follow a consistent pattern. Below are key indicators to watch for and recommended actions to take before options narrow.
Early Signs of Insolvency: Behaviour Changes
Financial statements reflect past performance, while directors under pressure show signs in real time.
COSBOA’s 2026 Small Business Perspectives Report found that 77% of regional small business owners experienced stress or anxiety related to their business in the past year. This strain typically affects the owner before it appears in a lodged BAS.
Client Warning Signs
- Meetings regularly postponed or cancelled
- Financial information arriving late and incomplete
- Repeated assurances that things will improve next month
- Creditors paid selectively, or ATO debt used as working capital
- Assets sold or unprofitable work taken on to generate cash
- A director who disengages, or becomes defensive about questions they once answered easily
When Financial Distress Hits the Numbers
After behavioural signs emerge, the ledger often reveals a combination of the following issues:
- A growing ATO balance where lodgements have slipped
- Cash flow problems that recur each quarter
- Suppliers and superannuation falling into arrears
- Margins declining while revenue holds steady
Supplier arrears can also impact the client’s credit file. A reported unpaid invoice becomes a registered trade payment default.
According to CreditorWatch’s June 2026 Business Risk Index, a single default increases insolvency risk to more than ten times the national average within a year.
Is It Temporary Pressure or a Sign of Insolvency?
The key test is whether the business can recover based on its current financials.
A single difficult quarter with a funded recovery plan indicates temporary pressure. However, debt that increases each month while lodgements fall behind suggests a genuine sign of insolvency.
What to Do Once You See the Pattern
Questions to Ask Early
- What is the current ATO balance, and are all lodgements up to date?
- Are superannuation and employee entitlements up to date?
- Which creditors are being paid first, and why?
- What do the next 13 weeks of cash look like?
- What has been personally guaranteed?
The responses will indicate whether it is time to have a direct, honest discussion with the client about their options.
Read more: How to Approach Insolvency Conversations with Your Clients
Refer While the Options Are Still Open
An ASIC review of voluntary administration in July 2026 found that fewer than one in three appointments with liabilities under $1 million resulted in a deed of company arrangement. Most proceeded to liquidation without a proposal to creditors, which may indicate that directors often sought advice only after their position had significantly worsened.
Identifying early signs of insolvency is an opportunity unique to accountants. If raised promptly, a viable business may qualify for a small business restructure or another formal solution. If delayed, liquidation is often the only remaining option.
SALEA Advisory is a Sydney-based restructuring, recovery, and insolvency practice. We partner with accountants to support their clients in managing financial distress.
Download The Adviser’s Guide to Insolvency to strengthen your role as a trusted partner to your clients, or schedule a confidential conversation with our team.
