![]()
![]()
Financial distress: Signs & Remedies
Running a business comes with its ups and downs. But when the downs hit hard, particularly in the form of financial distress, it can feel like everything is falling apart. The good news is
that financial trouble doesn’t have to mean the end of your business. With the right guidance, it’s possible to steer your company back to smoother waters.
![]()
![]()
What is financial distress?
When a business struggles to cover its daily expenses, bills, and debts, the underlying cause could be financial distress. This situation, in turn, could be brought on by declining sales, mounting costs, or poor financial management.
At such point, the biggest concern often becomes solvency or whether your business can meet both its immediate and long-term obligations, also evaluated as cash flow solvency and balance sheet solvency, respectively.
![]()
![]()
What causes financial distress?
The financial failure of an enterprise is often due to a few common issues that can be generally categorised into internal and external causes.
![]()
![]()
Internal factors
Internal causes are brought on by poor financial management that lead to poor decisions.
For many small businesses, one of the biggest challenges tends to be managing cash flow
effectively.
When there’s not enough cash coming in to cover things like wages, rent, or loan
repayments, it can quickly snowball into financial trouble.
Taking on excessive debt to grow the business or to spend on assets like additional equipment which demands constant repayments even when profits are down can jeopardise your company’s viability.
![]()
![]()
External factors
External causes of distress can also impact how well a company performs financially.
Economic downturns, wars and social unrest, and rising interest rates can cause entire industries and even economies to collapse.
Another example of an external factor is unforeseen and sudden shifts in consumer behaviour.
The good news? Most of these issues can be avoided or managed. Regular financial check- ins and working closely with your accountant can help you spot problems early, plan ahead, and work on mitigating risks to prevent your finances from spiralling out of control.
![]()
![]()
Tell-tale signs of financial hardship
Watch out for the following red flags that indicate your business could be battling a storm:
●Declining cash flow. Are you struggling to pay employee wages and supplier invoices? Do you feel like you’re barely making ends meet month after month? That means you may have to do a hard balancing act to reveal where the strain is coming from.
●Excessive debt. Are you constantly borrowing to cover operating expenses? Do you have too little left to cover your growth plans? Your company’s financial core could be shrinking and you need to figure out how to fund your repayments more sustainably.
●Shrinking profit margins and declining sales. When revenue is down and there’s barely enough left for you to execute on your sales and marketing, profits will continue to slide. You need to find the leaks and seal it in or money will continue to flow out of your business.
Thankfully, financial distress doesn’t have to end in insolvency or liquidation. But, whether your business sinks or floats will be up to how fast you can identify and mitigate the risks.
![]()
![]()
What you can do to manage financial distress
There are several paths you can explore to help your business recover.
![]()
![]()
Business restructuring
Restructuring is essentially a reset button for your business. This might involve reorganising your debts, cutting unnecessary expenses, or even shifting your business model. By negotiating with creditors or making operational changes, you can give your business the breathing room it needs to recover.
![]()
![]()
Seek advice early
One of the most important things you can do is seek help early. A business advisory expert can assess the situation and lay out your options. Whether you need to restructure, negotiate with creditors, or explore other solutions, the earlier you act, the better your chances of a successful turnaround.
![]()
![]()
Voluntary administration
In more severe cases, voluntary administration can provide a way to pause and restructure the business under the guidance of an external administrator. This option allows the business to keep trading while sorting out its financial issues. Think of it as a lifeline that could give your business a second chance.
Don’t forget the emotional side
Financial stress doesn’t just impact your bottom line—it also affects your well-being. The emotional strain of worrying about your business can take a toll on your mental health.
That’s why it’s important to reach out for help, not only for financial advice but also for emotional support during these challenging times.
How Business Adviser can help
It’s tough to be facing financial distress but you don’t have to take on the problem alone.
Increase your chances of breathing a new life to your business by engaging Business Adviser, a division of DAB Financial Group.
Our experts have the proper qualifications and extensive experience to gear up your business to weather financial distress and set you on the right path to recovery.
Beyond that, our experts will work with you to prevent similar instances from happening again in the future. We can help you get your financial records in order so you can spot trouble before these can create more damage to your business.
Find out your options for recovery. Call Business Adviser today.
References:
Australian Securities and Investments Commission (ASIC), “Insolvency Information for
Australian Restructuring Insolvency and Turnaround Association (ARITA), “What is Voluntary
Administration?” ![]()
ARITA Website![]()
Business.gov.au, “Understanding Financial Difficulty” ![]()
Business.gov.au![]()
