As the financial year draws to a close, many small and medium-sized businesses take stock of their operations. Reviewing performance is about ensuring compliance and also an excellent opportunity to identify weak points, improve processes, and set the business up for a more stable and productive year ahead.
Whether you’re a sole trader or manage a team, here are six common financial red flags worth addressing before 30 June.
1. Inconsistent Cash Flow
If your business is regularly experiencing cash shortfalls, even during periods of strong revenue, it may be time to reassess how funds are being managed.
Look for:
Late invoice payments from clients
Over-reliance on short-term debt
Mismatched timing between expenses and income
A cash flow forecast can help identify pressure points and guide adjustments to payment terms or expense planning.
This is especially important heading into the new financial year. A 2024 survey by NAB found that 75% of Australian SMEs expect the cost of doing business to rise in 2025, with only 2% anticipating a decrease. With higher expenses on the horizon, businesses already struggling with inconsistent cash flow may find themselves under added pressure if corrective steps aren’t taken in advance.
2. High Accounts Receivable
Outstanding invoices that remain unpaid well past their due date don’t just affect your cash flow but may also signal issues with credit terms, client communication, or follow-up processes. Reviewing your invoicing system, clarifying payment terms with clients, or setting up early payment incentives (or appropriate penalties) can help improve consistency.
Recent data shows this challenge is becoming more acute. According to the illion Commercial Risk Barometer, the number of businesses at very high risk of failure in Australia rose by 1.3% in the December 2024 quarter, nearly double the rate of overall business growth. The percentage of businesses at severe risk jumped by 3.7%.
This suggests that a growing number of SMEs are struggling to meet their financial obligations, with late invoice payments being a key contributor to cash flow strain and rising insolvency risk.
3. Outdated Financial Records
If you’re behind on reconciling bank statements, tracking expenses, or updating your ledger, now is the time to get up to date. Accurate records are critical for:
Preparing BAS or GST returns
Calculating depreciation and deductions
Accessing finance or grants
The scale of this issue is significant. The Australian Taxation Office (ATO) reported that, as of January 2024, small businesses were responsible for approximately $34.1 billion in collectable debt. Much of this related to unpaid GST and PAYG withholding, underlining how essential timely recordkeeping is for meeting tax obligations and avoiding a buildup of unmanageable liabilities.
EOFY is also an ideal time to review whether your current accounting systems are still meeting the needs of your business or whether a more streamlined approach could improve visibility and compliance.
4. Expenses That Don’t Add Up
Unexplained increases in operating expenses or irregular purchasing patterns can point to inefficiencies, or worse, errors that go unnoticed.
Review where costs have risen sharply can all help reduce waste:
- Supplier invoices for price creep or duplications
- Subscriptions or services that may no longer be used
- Expense categories where costs have ballooned year-on-year
According to the Australian Bureau of Statistics, nearly half of all businesses reported increases in their operating expenses last year. This highlights how important it is to stay proactive about expense management especially during periods of inflation or supply chain disruption.
Catching these trends early helps avoid compounding losses and frees up resources that could be better invested elsewhere in the business.
5. Low Profit Margins
This is a challenge faced by many small businesses. According to findings reported by the Queensland Small Business Commission, 43% of small businesses made no profit at all, and around three-quarters of owners earned below the national average wage. These figures highlight how tight margins can affect not just business sustainability but also the financial well-being of those running them.
6. Compliance Gaps
Before the new financial year begins, confirm that you’re meeting your obligations in areas such as:
- Superannuation payments (including any upcoming rate changes)
- Payroll and Single Touch Payroll (STP) reporting
- GST registration thresholds and ATO recordkeeping requirements
A brief check-in with your bookkeeper or accountant now can prevent compliance issues or missed deductions later.
This is particularly important for businesses carrying tax debt. The Australian Taxation Office has stated that it will take firmer action on outstanding debts exceeding $100,000, including the use of enforcement measures such as director penalty notices and garnishee orders. For SMEs approaching or exceeding this threshold, staying compliant and addressing tax obligations early can reduce the risk of further financial stress or legal intervention.
Looking Ahead with Confidence
Fixing these red flags doesn’t require dramatic changes—but addressing them proactively can protect your business from risk and improve your financial resilience in the year to come. With clearer visibility and better processes, you’ll be better positioned to pursue growth and adapt to new challenges.
This information is for general information purposes only. The information contained herein does not constitute financial or professional advice or a recommendation. It has not been prepared with reference to your financial circumstances or business and should not be relied on as such. You should seek your own independent financial, legal and taxation advice as to whether or not this information is appropriate for you.