The Reserve Bank of Australia (RBA) has said that even though insolvency numbers are up, the country’s financial system remains stable. That’s reassuring, but it doesn’t mean every business is sailing smoothly. Many small and medium enterprises are still navigating rising costs, tighter margins, and weaker demand.
When the RBA says the risks are “contained,” what they mean is that most of the pressure is felt by smaller businesses, particularly those in construction, retail, and hospitality. These businesses often have limited access to bank funding, and their cash flow is more vulnerable. Even small cost changes, slower customer payments, or reduced demand can create real stress.
Cash reserves that were built up during the pandemic have mostly been used, leaving businesses with less room to manage unexpected challenges. For many SME owners, this can feel overwhelming and raises the question, did those cash reserves really help, or did they just delay the inevitable?
The RBA also highlighted that many businesses are operating with thin margins and that some sectors are experiencing ongoing cash flow pressures despite generally healthy bank lending conditions. While banks are well-capitalised and prepared to manage potential losses, the reality for small business owners is that access to finance does not automatically solve operational challenges.
From my experience working with businesses for over 40 years, the key to navigating these pressures is EARLY ACTION. Taking a clear look at your financial position now, before problems escalate, can reveal practical ways to stabilise cash flow, reduce costs, or restructure debt. We can also see where you might be “haemorrhaging” money and help you plug those gaps. These steps aren’t about creating panic, they are about giving you choices and keeping your business on track.
The RBA also noted that many businesses have returned to “normal” cash buffers after the pandemic. While this is a positive sign, it also means businesses no longer have the extra cushion they once relied on, so careful management of working capital and operating costs is essential. Those restrictions are certainly helped by the ongoing employment market issues affecting many different sectors.
Restructuring isn’t just for when things are dire. Engaging with an experienced adviser early can help you make smart decisions that preserve value, protect your team, and give you confidence to move forward. Whether it’s looking at cost rationalisation, refinancing, or exploring safe harbour protections, early action can create options that simply won’t be available if issues are left unaddressed. Acting sooner rather than later often makes the difference between a temporary setback and a crisis that’s much harder to fix.
Finally, while macroeconomic conditions such as high interest rates, global uncertainty, and softening demand can create challenges, the RBA noted that overall financial stability remains strong. This is a reminder for SME owners that while the system is resilient, individual businesses still need practical support to navigate sector-specific pressures.
For SME Owners
If you’re feeling the pressure, remember that you don’t have to go through it alone. Practical guidance, tailored to your business, can help you weather this period, protect your team, and set your business up for a stronger future.
For Advisors
Your SME clients might be facing cash flow stress, tight margins, or sector-specific pressures. Some clients may not even know where to start when it comes to checking their financial health. Let’s work together to help them understand what signs to look out for, identify early warning signals, and provide timely advice and support to give them their best chance of recovery and long-term success.
ACT EARLY, ACT NOW. Call DVT Mcleods today to book your free consultation.
This commentary reflects on the article published by Accounting Times on 6 October 2025, “High insolvency rates not a threat to Australia’s financial stability, RBA says.”: High insolvency rates not a threat to Australia’s financial stability, RBA says | Accounting Times
