The dust is about to settle on another financial year, and the real work for advisors is about to begin with forward planning for their clients. This coming financial year is going to have a much tougher economic and statutory compliance environment for businesses.
While Australia is not in a technical recession, it is in a per capita recession, and the risk is rising. Growth is slowing, interest rates are sustained at 4.35%, headline inflation is at 4%, the labour market is loosening, and business activity is contracting in many industries.
Financial year 2027, it’s going to be harder but harder doesn’t mean unmanageable. The clients who plan early, build cash reserves, and act on the warning signs will be in the best place to weather the storm.
Lessons to learn from FY2026
Before you help your clients plan for FY2027, it’s worth first dealing with the issues of FY2026 and the lessons it has taught us. Three lessons stand out, each of which should be considered and should shape how you advise your clients heading into the new financial year.
1. Inflation and rising business costs
Rising prices and higher business costs have put extra pressure on businesses that were already short on cash. While clients cannot control inflation, many have not planned their cash flow well enough. As a result, they have relied too heavily on short-term funding to cover gaps, without properly considering how that money should be used.
A client may have also not fully considered how higher borrowing costs will reduce their profit margins (if any) and whether any profit will be left over. A portion of these clients tend to be surviving on external borrowings as they slowly circle the drain.
2. Increasing ATO and other statutory liabilities.
At no surprise when a business is short on cash, tax and other statutory payments are often delayed or missed. Most commonly this includes lodging and paying BAS, PAYG and Super amounts to the ATO.
Over the last financial year, the ATO has become more active in chasing poor compliance, unpaid debts and is increasingly using its firmer action powers to recover those amounts. There also has been an increase in the Deputy Commissioner of Taxation commencing legal proceedings against Directors for outstanding Director Penalty Notices, even when the Company debt is subject to a restructuring plan or a deed of company arrangement.
Compliance obligations in FY2027 do not look like they will be any easier. Possibly, Payday Super will have the most significant impact on these businesses since the introduction of the GST. The first month under Payday Super will likely be the toughest on cash flow, as it effectively brings forward and consolidates super obligations that previously accrued across multiple pay periods into a single, immediate liability, which is a sharp adjustment for businesses who historically have waited until the quarterly deadline to meet their obligations.
Adam Thorpe further covers Payday Super in his previous article: New Payday Super and its Cash Flow Compression
David Stimpson further covers ATO enforcement in his previous article: The Tax Man Cometh
3. Over the past few years, many Australian businesses and their Directors rode a wave of strong trading conditions, government stimulus, and easy credit into a period of comfortable lifestyle growth. They upgraded vehicles, larger homes, private school fees, and drawings that quietly expanded to match the good times.
But as the economy tightens with higher interest rates, softening consumer demand, and intensifying ATO enforcement, that lifestyle has a way of becoming entrenched while revenue is heading the other way.
The danger is lifestyle creep outpacing what the business can actually sustain and Directors continuing to draw at peak levels, funding personal commitments out of a company that no longer generates the surplus to support them.
Discipline now means realigning personal spending with the realities of the business, prioritising cash retention, working capital, and tax obligations over personal comfort, and resisting the temptation to prop up an unchanged lifestyle with debt or deferred liabilities. The directors who weather a downturn are usually the ones who treat the business’s needs as the first call on its cash not the last.
A significant consideration for the ATO for any Restructuring Plan or Deed of Company Arrangement is that the Director hasn’t continued to fund their lifestyle with Div7a loans whilst their tax liabilities have grown.
SIDE NOTE
EOFY is also a good time for advisors to sit down with clients and revisit their asset protection structures. If they appear to have solvency issues, the critical point to get across is that effective asset protection is not about “moving the assets before liquidation”.
Transactions entered into when a company is insolvent, is likely to become insolvent, or becomes insolvent as a result of the transaction itself, can later be unwound under the voidable transaction provisions of the Corporations Act 2001 (Cth) or the Bankruptcy Act 1966 (Cth). By that stage, it’s too late, and the attempt can make a Director’s position considerably worse and more costly.
The real work is legitimate forward planning, done well before any pressure builds. That means encouraging clients to focus on things like succession, reviewing the ownership structures for key assets, making sure trust structures are actually being administered properly, and formalising related party arrangements rather than leaving them on a handshake.
It also means documenting loans and security interests correctly, reviewing PPSR registrations, and ensuring Directors genuinely understand the personal guarantees they’ve given, maintaining a register of those guarantees, and knowing how they are being managed.
Building your FY2027 Client Planning and Readiness Framework
As FY2026 closes and the economic outlook tightens, the most valuable advice for clients who are starting to experience distress is to treat the EOFY period as a strategic reset rather than the end of the compliance cycle. The clients most at risk rarely announce themselves before they reach a crisis.
1. Make cash reserves a priority
Heading into a tighter economic year, the most effective thing a business can do is rebuild the cash buffer. Reserves are what let a business absorb a late debtor receipt or a poor quarter without it becoming a solvency problem.
Cash | What to do |
|---|---|
Bring cash in faster | Tighten payment terms, invoice immediately, and run zero tolerance on overdue debtors. Deposits upfront, early-payment discounts, and clearing excess stock all pull cash forward. |
Slow cash going out | Use supplier terms in full and negotiate longer ones where you can. Raise expense sign-off thresholds and cut unnecessary recurring costs and subscriptions that have crept up. |
Protect margin | Review pricing where the business has quietly absorbed cost increases rather than passing them on. Cut unprofitable product or service lines, including customers, to lift the surplus available to retain. |
Manage the structural drains | Hold Director drawings to what the business can sustain, retain profits rather than distributing everything, and plan for tax obligations ahead of time. |
Make it deliberate | Quarantine a fixed amount each month as a non-negotiable transfer, held in a separate account. Adhere to a rolling cash flow forecast detailing how much can be set aside without starving working capital. |
2. Identify and triage clients who are in distress
Although insolvency can be complex to assess, the following indicators are a useful first step in identifying which clients warrant a closer look.
Insolvency Indicator | What to look for |
|---|---|
Continuing losses | Look for a pattern of trading losses across consecutive months, not just a single bad quarter. Persistent losses erode working capital and equity. |
Liquidity ratio deterioration | Watch the current and quick ratios trending below 1.0 and worsening over time, signalling the business can't cover short-term liabilities from short-term assets. |
Overdue Commonwealth and State taxes | Unpaid or rolling BAS, PAYG, superannuation, and payroll tax liabilities are among the clearest warning signs, as tax debt is often the first obligation a struggling business defers. Beyond the insolvency risk, ATO arrears expose directors to Director Penalty Notices and personal liability. |
Creditors paid outside terms | Look for trade creditor days blowing out and suppliers consistently being paid well beyond agreed terms. A creditors ledger full of aged balances or suppliers moving the business to COD or stop-supply shows the client’s cash flow is no longer keeping pace with obligations. |
Special arrangements with selected creditors | Be alert to payment plans, deeds, or informal "pay what you can" arrangements being negotiated with key suppliers or the ATO. While sometimes a sensible step, a growing reliance on these arrangements signals the business can't meet its debts as and when they fall due. |
3. Annual Reviews to ongoing monitoring
Have the courageous conversations early
Use the momentum from EOFY reviews to talk about risk openly. Frame it around resilience, not failure. Position a confidential discussion with a registered insolvency practitioner as insurance rather than defeat. SV Partners offers obligation-free initial consultations for exactly this reason. Directors who feel supported are far more likely to act early, while the options are still open to them.
Move from annual reviews to ongoing monitoring
Shift to more frequent health checks with spreadsheets or software dashboards tracking the KPI metrics that move first:
- cash runway
- liquidity ratio
- ATO position
- debtor and creditor days
- gross margins
- Director loan movements.
Crisis preparedness
Every client should have a documented Crisis Plan, drafted before they need it. A good plan covers the following areas:
Cash Crisis Preparedness | What to do |
|---|---|
Keep a list of key contacts | It is important to keep a list of key contacts that your client will need in a crisis to contact
|
Forecasting | Drop from a 13-week rolling forecast to a four-week daily cash flow, owned by one person who actualises yesterday's movements, reconciles the bank, and updates the days ahead first thing each morning. |
Receipts | Pull cash forward with zero tolerance on overdue debtors, tighter payment terms, deposits on orders, faster billing, early-payment discounts, clearing excess stock, selling redundant assets. |
Payments | Negotiate to pay less and later, with later usually the priority. This is the hardest part, because deviating from supplier terms risks a critical supplier putting the client on stop. Grade suppliers by how critical they are to operations and how likely they are to work with the client, then set a specific payment and communication approach for each group, triaged daily. |
Costs | Every cost committed today is cash out the door tomorrow. Raise the threshold on expense sign-off and signal clearly that the business needs to be frugal and make it genuinely difficult to spend at all. |
Communication | Hold daily meetings to review the updated forecast and decide which suppliers get paid and how much. The finance lead should chair it, to embed the discipline and demonstrate leadership. |
Funding | Map potential emergency funders and structures in advance, and understand the constraints in the Client’s capital structure. |
Obligations | When the business is having solvency issues, directors' duties shift from shareholders to creditors, and trading insolvent carries serious personal liability consequences. Get advice from a Registered Liquidator early and keep careful minutes and records.
Consider a safe harbour engagement to protect from insolvent trading liability as explained further here. |
Fix the real problem | Everything above buys time; it doesn't cure anything. A cash crisis means something in the business has failed and the real work is fixing that root cause while managing the cash position. Detail what that problem is. |
4. Protect and position your own practice
As you take on a more active monitoring and advisory role with at-risk clients, remember that the same shift exposes your own practice to risk. Start with your engagement letters. Most engagement scope is written for compliance work, preparing accounts and lodging returns. If you’re now running quarterly health checks, flagging warning signs, and advising Directors on their options, your engagement terms need to reflect that scope, including what you are and aren’t responsible for. A clear engagement letter protects both sides and it sets the client’s expectations and defines the limits of your role before anything goes wrong.
Document the advice you give, particularly around solvency and the warning signs you’ve raised. When a business ultimately fails, the questions that follow from liquidators, from the regulators, and from the directors themselves often turn on what was known and when, and what advice was provided. Contemporaneous file notes of the conversations you had, the risks you flagged, and the recommendations you made are your best protection. The same records also serve the client well, evidencing that they were warned and given the chance to act.
Sitting underneath all of this are your Tax Practitioners Board obligations, which have expanded materially to eight additional Code of Professional Conduct obligations, several of which bear directly on advisory work with distressed clients. With breach reporting already in force and an expansion of the Tax Practitioners Board’s sanctions flagged from 1 July 2026, the compliance bar is only rising. The competence obligation reinforces the need to bring in a specialist when a matter moves beyond general advice, the record-keeping obligation makes contemporaneous notes a Code requirement rather than merely good practice, and the obligation to keep clients informed means being frank about the consequences of unpaid BAS, PAYG and super and a Director’s personal exposure to Director Penalty Notices.
If you need further help
If you have identified clients who are:
- Already showing signs of insolvency or likely to become insolvent; or
- Unable to meet the new compliance obligations; or
- Carrying significant ATO debt, receiving DPNs or repeatedly breaking payment plans; or
- Experiencing cash flow gaps that will worsen under the new Payday Super timing rules;
then early action is critical. The sooner these clients are supported, the more options remain available whether through restructuring, implementing a stabilisation plan, negotiating with the ATO, or exiting the client if problems cannot be resolved.
If you have clients who are likely to struggle after your end of financial year reviews, including new obligations under Payday Super, we are available to confidentially review their situation and outline practical pathways forward. A short discussion now can prevent a far more serious problem later.
Reach out at any time to discuss a client who may need insolvency or restructuring assistance
Article by Adam Thorpe (Associate Director) – Brisbane