A position paper for governance professionals, legal practitioners, and accountants evaluating the BusinessSolvency platform.
BusinessSolvency is not a financial reporting tool. It is a solvency workflow, built on seven years of independent research into why Australian businesses fail and what any business owner can do — legally and practically — to prevent it, whatever the business's legal structure. This document sets out the research foundation that underpins the platform, its methodology, and its relevance to the legal and financial obligations Australian business owners carry.
It is written for governance professionals who need to satisfy themselves that BusinessSolvency is grounded in rigorous research before recommending it to business owners, boards, or clients. For the founder's own account of the research journey — including the personal experience that started it — see The Research Behind BusinessSolvency.
Module Summary
Australian business failure is predominantly a cashflow problem, not an operational one. Business owners don't typically close their businesses because they fail personally — they close because creditors withdraw support when cashflow becomes unsustainable. No existing tool translates financial statements into a business-ready solvency assessment. That's the governance gap.
For a sole trader or partnership, every dollar of business debt is already a personal debt — there is no separate company standing between the business and the person who owns it, so no statute needs to establish the exposure. For context: where a business is incorporated, that same exposure is codified instead as a non-delegable duty on company directors under Section 588G, with access to a Safe Harbour defence (588GA) for those who maintain regular, documented solvency monitoring — a different legal mechanism reaching a comparable outcome. Demonstrating that the Sustainable Cashflow Formula was applied — tested, breakeven identified, Solvency Report generated — is directly relevant either way: as the closest thing to a defence a non-incorporated owner has, or as evidence supporting a director's Safe Harbour position.
The integration of these streams resolves an anomaly Christensen identified but never fully explained: why businesses fail even when serving customers well. They fail because the revenue required to meet every cash obligation is itself an unknown that must be specifically calculated — and no existing tool performed that calculation at the business level, for any legal structure.
All Cash IN ≥ All Cash OUT, where Cash OUT = operating expenses + capital loan repayments + ATO obligations + drawings and private costs + reserve provisions. See The Formula for the full framework.
A three-step workflow: Analyse (test the historical position), Breakeven (calculate the Sustainable Cashflow Breakeven), Solvency Report (generate a defensible, contemporaneous record). BusinessSolvency does not provide legal advice — it produces the documented evidence of solvency testing that ordinary prudent diligence (for sole traders and partnerships) would look for.
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Australian business failure is predominantly a cashflow problem, not an operational one. Business owners are not typically forced to close because they fail personally — they are forced to close because creditors withdraw support when cashflow becomes unsustainable. This distinction is fundamental to understanding the governance gap, and it applies identically whether the business trades as a company, a sole trader, or a partnership.
The governance gap is this: accounting software produces financial statements, but no tool translates those statements into a business-ready solvency assessment. Sole traders and partners carry direct, personal exposure for business debt as a simple matter of fact — no statute needs to spell it out, because there's no company standing between the debt and them. (Where a business is incorporated instead, the same underlying exposure is codified as a company director's obligation under Section 588G of the Corporations Act — a different legal mechanism reaching a comparable outcome.) Either way, owners are given no practical instrument to test whether they are ahead of that obligation.
The result is that business owners regularly sign off on financial periods — or simply carry on trading — without having tested solvency, not because they are negligent, but because no accessible workflow existed to guide them through the process. BusinessSolvency is built to close that gap, for every structure.
Insolvency is a capital structure problem, not an operational failure. Business owners are forced to close by creditors withdrawing support — not by failing personally. The governance obligation is to anticipate this condition before it becomes irreversible.
Stephen Fairbairn — Sustainable Cashflow Research, 2016–2025For a sole trader or partnership, the legal position is direct and requires no statute to establish it: every business debt is already a personal debt, with no corporate structure standing between the business and the person who owns it, from the moment the debt is incurred. Where a business is incorporated instead, that same underlying exposure is codified as a company director's obligation to prevent insolvent trading, established in the Corporations Act 2001 (Cth) and interpreted by ASIC in Regulatory Guide 217 — a different legal mechanism, reaching a comparable outcome, and included below for context. Worth being precise about what actually decides which mechanism applies: it's whether the business is incorporated, not how involved the owner is in running it day to day (see BusinessSolvency Chapter 2, Section 2.1, or BoardSolvency Chapter 2, Section 2.1, for the full reasoning). A sole trader doing every job themselves and a solo director of a one-person Pty Ltd doing exactly the same work sit under two entirely different legal regimes, purely because one of them incorporated and the other didn't.
A director of a company contravenes this section if the company incurs a debt at a time when the company is insolvent, or becomes insolvent by incurring that debt, and at that time there are reasonable grounds for suspecting that the company is insolvent or would become insolvent by incurring that debt.
The duty applies to all directors — executive and non-executive — and cannot be delegated. For a sole trader or partnership, there is no equivalent test to meet, because there is no company for a statute to reach through in the first place — the debt is already personal.
ASIC's updated guidance makes clear that directors who maintain regular, documented oversight of solvency indicators are better positioned to avail themselves of the Safe Harbour provisions under Section 588GA. Those who cannot demonstrate active monitoring are not.
RG 217 specifically identifies the need to monitor cashflow, working capital, and debt service capacity as part of ongoing governance — precisely the indicators the Sustainable Cashflow Formula is designed to test, for any business structure.
No equivalent statutory Safe Harbour exists for a sole trader or partner, because there is no separate corporate entity for a regulator to protect — the exposure runs straight to personal assets from the first missed payment, with ASIC never entering the picture at all. The absence of a formal Safe Harbour route does not reduce the value of documented solvency monitoring for a non-incorporated business — if anything, with no regulatory buffer in the process, testing the Sustainable Cashflow Formula and keeping a record of it is the closest thing to a defence a sole trader or partner has.
BusinessSolvency does not provide legal advice. However, the documented output of the three-step workflow constitutes a contemporaneous record of engagement with solvency analysis that is directly relevant to any subsequent review by a liquidator, a court, a bankruptcy trustee, or — most practically — simply to the owner's own case for having acted responsibly and in good faith.
The Sustainable Cashflow Formula rests on four intersecting research pillars: the theory of disruptive innovation, the cashflow management literature, the capital structure research on business failure, and the startup-failure literature that documents the same gap from the US venture-backed sector. Each pillar contributed to the development of a formula that is both academically grounded and practically applicable by any non-specialist business owner.
Prof. Clayton Christensen's research on why established businesses fail when disrupted by simpler, cheaper solutions — and the Jobs to be Done framework that defines what customers truly need.
The academic and practitioner literature establishing that business failure is predominantly a cashflow problem — and that sustainable cashflow requires testing all cash OUT against all cash IN.
Research establishing that insolvency is a capital structure problem — creditors withdraw support before operational failure, meaning owners must monitor debt service capacity proactively.
Prof. Tom Eisenmann's 30-year Harvard study of startup failure — rigorous at scale, yet never isolating the cashflow mechanism this research identifies.
Professor Clayton Christensen of Harvard Business School devoted decades to researching why well-managed, successful companies fail when confronted by new market entrants. His foundational work — The Innovator's Dilemma (1997), Competing Against Luck (2016), and The Innovator's DNA (with Dyer and Gregersen, 2019) — established the theoretical basis for understanding how disruptive innovation succeeds by addressing what customers actually need, not what established providers assume they need.
Disruptive innovation succeeds by offering simpler, cheaper, more accessible solutions to customers who are frustrated by the complexity and cost of existing products — and by doing so consistently, at the point of need.
After Clayton Christensen, The Innovator's Dilemma, HBR Press, 1997Christensen's Jobs to be Done (JTBD) framework is directly applicable to the BusinessSolvency context. Business owners do not need a complex financial reporting platform — they need a simple, consistent, affordable workflow that tells them whether the business can meet its obligations before the period is signed off. That is the job to be done. Existing accounting software (designed for accountants and bookkeepers) does not do this job. BusinessSolvency does.
Christensen's observation that established corporations are disrupted by solutions that are initially dismissed as too simple is precisely the competitive position BusinessSolvency occupies relative to the existing professional services market for insolvency advice. Business owners currently rely on expensive practitioners who are typically engaged after the crisis has developed. BusinessSolvency is the proactive alternative — affordable, accessible, and owner-controlled.
Professor Amy Edmondson of Harvard Business School has spent decades researching how complex organisations — hospitals, airlines, surgical teams, flight crews — manage errors that cannot be predicted in advance. Her foundational work, culminating in The Right Kind of Wrong (Cornerstone Press, 2023), establishes a taxonomy of errors: simple errors (slip-ups against known rules), bad errors (deliberate violations), and intelligent errors — complex failures where the answers are not known in advance and must be discovered through careful, hypothesis-driven investigation.
Intelligent errors involve careful thinking, don't cause unnecessary harm, and generate useful learning advances to our knowledge. The answers are not known in advance — they need to be discovered. They are the only type of failure worth celebrating.
After Amy Edmondson, The Right Kind of Wrong, Cornerstone Press, 2023, p.11Edmondson's research was directly relevant to Stephen Fairbairn's seven-year investigation into why Australian businesses fail. The parallel is exact: just as nursing teams and flight crews face complex operating systems where critical variables are initially unknown and must be discovered through structured process, a business owner forecasting future cashflow faces a system where each component of the Cash OUT equation is initially unknown and must be researched and quantified before the required Cash IN can be determined.
Edmondson's work gave Fairbairn the conceptual language to articulate what had previously been difficult to express: that business cashflow forecasting is a complex error management problem, not a simple arithmetic one. Each side of the Sustainable Cashflow Formula — Cash IN and Cash OUT — contains unknown unknowns that must be specifically identified and resolved before the formula can yield a meaningful solvency answer. This is not a limitation of the formula; it is its defining characteristic.
The application to business governance is direct. Owners who carry on trading without having tested solvency are not necessarily negligent — they are operating in a system where the tools to surface the unknown unknowns have not previously existed. BusinessSolvency provides those tools, guiding the owner through the structured process of identifying and quantifying each component of the cashflow equation — the same disciplined approach that Edmondson's research shows is essential in complex, high-stakes operating environments.
Professor Roger L. Martin, former Dean of the Rotman School of Management and strategic advisor to the CEOs of major corporations including Procter & Gamble, contributes the second critical element of the Sustainable Cashflow Formula's theoretical foundation: the distinction between planning and strategy, and the concept of integrative thinking as a method for resolving apparently irresolvable contradictions.
In A New Way to Think (Harvard Business Review Press, 2022) and in his widely cited HBR article "A Plan is Not a Strategy" (June 2022), Martin establishes that a strategy forecasts what would have to be true — not what is true. This distinction is fundamental to the Sustainable Cashflow Formula. Conventional financial budgeting is a plan: it projects known historical data forward. The Sustainable Cashflow Formula is a strategy: it asks what revenue would have to be generated for the business to remain solvent, and works backwards from the obligations that must be met to determine that figure.
A strategy forecasts what would have to be true, not what is true. In testing the forecast unknowns, we find new causes for more effective data estimating.
After Roger L. Martin, A New Way to Think, Harvard Business Review Press, 2022, p.55Sharissa Newton of the Centre for Effectiveness, building on Martin's framework, articulates the building blocks of good strategy in her article "Plan vs. Strategy: Is There a Difference?" Newton and Martin converge on the insight that an effective strategy is a flexible, integrative plan to achieve a desired goal under conditions of uncertainty — positioning the business to meet its obligations to customers, creditors and stakeholders, with the capacity to adapt as conditions change. This is precisely what the Sustainable Cashflow Formula achieves in the cashflow governance context.
Martin's work on integrative thinking — the capacity to hold two apparently contradictory models in mind simultaneously and generate a creative resolution that contains elements of both — provided Fairbairn with the method for resolving what Christensen had identified as an anomaly but had not been able to fully explain.
Professor Tom Eisenmann taught entrepreneurial management in Harvard Business School's first-year MBA curriculum for 24 years, defining entrepreneurship as "pursuing novel opportunity while lacking resources" (Eisenmann, Why Startups Fail, Currency, 2021). His 2021 book draws on a research program spanning some three decades, surveying roughly 470 failed ventures alongside a detailed operational history of businesses launched by his own students.
Eisenmann's methodology is substantial. He develops several frameworks to categorise failure at different stages of a venture's life: a diamond-and-square framework for early-stage validation, built on double-diamond design principles; a "six S" framework for late-stage operational failure; and a "cascading miracles" framework describing how ventures compound optimistic assumptions until the accumulated gap becomes unrecoverable.
His early-stage failure categories include "good idea, bad bedfellows" — dysfunctional relationships with key resource providers — "false starts", where founders begin building before validating genuine customer pain, and "false positives", where excessive optimism about market opportunity goes insufficiently tested. His late-stage categories include the "speed trap" (early-adopter success that never generalises to a mature market), "help wanted" (funding shortfalls caused by gaps in the senior team), and the "cascading miracles" pattern itself, where each subsequent growth assumption is simply expected to resolve on its own.
Eisenmann defines venture failure in financial terms — as the point at which early investors will not recover more than they put in — and documents the human cost of closure with unusual candour: founders' grief, shame and guilt, mapped against the five stages of grief, alongside an argument for a founder culture that allows ventures to fail without treating the outcome as a referendum on the founder's worth. His random sample found that of fifty founders who had closed a venture by 2015, 52% had restarted and launched a new venture within five years — evidence, he argues, of the underlying independence and self-reliance that draws people to entrepreneurship in the first place.
What makes Eisenmann's work significant to this research is not only its rigour but its limitation. Despite three decades of documented failures at the world's leading entrepreneurship school, his frameworks describe where founders run out of resources and runway — team gaps, market mistiming, funding shortfalls — without isolating the specific mechanism connecting rapid growth to insolvency: that businesses close because the cashflow required to service growing debt, tax and drawings obligations was never explicitly forecast against incoming cash. Eisenmann does define a "sustainable point" — the moment sales volume generates enough gross profit to cover tax, marketing, overheads and new investment — which sits close to the Sustainable Cashflow Formula's own test, but is expressed in profit terms rather than cash terms, and does not incorporate the capital repayment obligations that this research identifies as the proximate trigger for creditor withdrawal.
In direct correspondence, Professor Eisenmann suggested that his students' accounting grounding came from HBS's first-year "Leading with Finance" course. A review of that course's published syllabus, and of HBS's separate "Financial Accounting" course, shows both are built around interpreting the cashflow statement retrospectively — through case studies pitched at corporate financial managers reading a completed period — rather than constructing it prospectively as a forecast a founder can act on before an obligation falls due. That distinction is the one this research turns on: not reading last period's cashflow statement, but calculating next period's, against every cash obligation the business carries.
That a researcher of Eisenmann's standing, working at this scale over this length of time, reaches a taxonomy of failure modes rather than a single decisive cause is itself telling. It suggests the mechanism this research identifies had not previously been isolated — not in Australia's SME sector, and not in the US venture-backed startup sector that Eisenmann studies.
For the very large slice of the small business sector that trades as a sole trader or partnership, there is no regulator in the picture at all, at any stage — enforcement runs directly from creditor to owner, with no equivalent of a director's duty needing to be established first. (Where a business happens to be incorporated instead, Section 588G applies with equal force to a listed corporation and a two-year-old startup — the director's duty does not vary with a company's age, funding stage, or industry norms.) In practice, no regulator proactively monitors or mandates solvency discipline for the small business and startup sector the way, for example, prudential regulation actively supervises banks and insurers before they fail. Enforcement in this sector is almost entirely reactive: banks, private funders, and creditors identify distress and force closure after the fact, followed where relevant by ASIC or ATO penalties — not before it, and not as a matter of routine oversight.
That regulatory vacuum has been filled, informally, by industry culture rather than by governance discipline. A startup that spends against funding it has been told to expect, rather than funding it has actually drawn, is engaging in exactly the "cascading miracles" pattern Eisenmann documents — yet this is frequently described, inside the industry, as normal and even necessary risk-taking rather than as a solvency warning sign. The absence of a mandatory external standard does not change the underlying cash mechanism every business is subject to; it simply means that, for now, business owners in this sector — of every legal structure — have to hold themselves to that standard voluntarily, without the external pressure that exists in more heavily regulated industries. BusinessSolvency's position is that this is precisely the gap worth closing early, ahead of any future regulatory mandate — not waiting for one to make the case.
The pivotal intellectual moment in the development of the Sustainable Cashflow Formula was the resolution of an anomaly that Christensen himself had identified but had not fully explained. In Competing Against Luck (HarperCollins, 2016, p.224), Christensen observed: "Anomalies do not disprove anything. Rather, they point to something the theory cannot yet explain." And on the same theme: "Good theories teach us how to think; what causes what to happen and to know how things happen."
Christensen and his son were frustrated by the continuing anomaly of business failures despite decades of innovation research. The Jobs to be Done framework explained why customers adopt new products — but it did not fully explain why businesses that serve those customers continue to fail at such high rates. The anomaly pointed to something the theory could not yet explain.
The resolution came through the integration of three research streams: Christensen's JTBD framework (what the business owner needs done), Edmondson's intelligent error framework (the unknown unknowns that must be discovered through structured process), and Martin's integrative thinking and strategy-as-forecast methodology (how to resolve the contradiction between what is known and what must be determined).
Reading most of Professor Martin's books and articles enabled me to solve the anomaly of Christensen's frustration with continuous business failures. I have incorporated this integrative thinking from both Christensen and Martin. The revenue breakeven level for cashflow is the concept of my integrative thinking of sustainable cashflow.
Stephen Fairbairn — Sustainable Cashflow Research Notes, 2025The Sustainable Cashflow Formula is the resolution of that anomaly. It answers the question that Christensen could not: why do businesses fail even when they are doing the right job for their customers? They fail because the revenue required to sustain the business — to meet all cash OUT obligations including debt service, taxation, drawings, and reserves — is itself an unknown that must be specifically calculated. No existing tool performed that calculation at the business governance level, for any structure. The Sustainable Cashflow Formula does.
The research literature consistently identifies cashflow failure — not operational failure — as the primary cause of business closure in Australia and internationally. Bernard Salt's analysis of Australian small business identified cashflow as the single greatest risk factor for SMEs.4 Research by Veda (now Equifax) established that late payment cycles are a leading indicator of impending insolvency.5
The critical insight that emerges from this literature — and that is embedded in the Sustainable Cashflow Formula — is that profit-based management is insufficient for solvency governance. A business can be profitable on an accrual basis while simultaneously running out of cash. Business owners who rely solely on profit and loss statements for governance purposes are operating with an incomplete picture of their company's solvency position.
Sustainable cashflow requires that all cash IN — from operations, equity, and financing — must equal or exceed all cash OUT — including operating expenses, capital loan repayments, taxation obligations, drawings, and reserve provisions. This is the basis of the Sustainable Cashflow Formula.
A key theoretical contribution of Stephen Fairbairn's independent research is the distinction between operational failure and capital structure failure. Conventional accounts of business failure tend to focus on the operational dimension — declining sales, poor management, market disruption. The Fairbairn research establishes that most Australian business closures are precipitated by creditor withdrawal, not operational collapse.
When a business cannot service its debts — to the ATO, to trade creditors, to lenders — those creditors withdraw credit facilities. Without credit, the business cannot continue operating even if its underlying operations remain viable. This is a capital structure problem: the business lacks sufficient cashflow to service the debt obligations that its capital structure requires. This is true regardless of whether that capital structure sits inside a company or directly on an individual's own name.
This insight is practically significant for business owners because it means the solvency question must be asked prospectively, not retrospectively. By the time a business is in financial distress, the owner's options are severely constrained. The Sustainable Cashflow Formula is designed to surface the solvency question at the forecast stage — before commitments are made and before the creditor relationship deteriorates.
The Sustainable Cashflow Formula emerged from seven years of independent research beginning in April 2016, culminating in the Sustainable Cashflow Manual completed in January 2025. The research drew on personal experience of business failure, the academic literature on cashflow management and disruptive innovation, and the Australian legal and financial framework governing business obligations — statutory for company directors, direct and personal for sole traders and partnerships.
The Formula addresses the fundamental limitation of conventional financial forecasting: it uses future data, not past data, to test whether the income level required to sustain the business is achievable. Conventional cashflow spreadsheets project historical patterns forward — they do not test what revenue the business must generate to meet all its obligations.
The critical innovation in the Sustainable Cashflow Formula is the treatment of each cash OUT component as an initially unknown variable that must be researched and quantified for each operating period. This is conceptually different from conventional budgeting, which works from known expense lines to a projected profit. The Formula works from the obligation side — what must be paid — to determine what must be earned.
This approach was directly influenced by Christensen's observation that successful innovators ask the question from the customer's perspective first — what job needs to be done — rather than from the provider's capability perspective. Applied to business governance: the question is not "what did we earn?" but "what must we earn to meet all our obligations?" The Sustainable Cashflow Formula answers that question.
The Sustainable Cashflow Breakeven is not accounting breakeven. It is the revenue level at which the business owner can be satisfied that the business will meet all its obligations — to creditors, to the ATO, to lenders, and to its own reserve requirements — for the coming period.
Stephen Fairbairn — Sustainable Cashflow Manual, January 2025The Sustainable Cashflow Formula is implemented in BusinessSolvency as a three-step governance workflow. Each step corresponds to a phase of the solvency assessment: Analyse (test historical three-statement position), Breakeven (calculate the sustainable cashflow target), and Solvency Report (generate a defensible, contemporaneous record). The workflow is designed so that any business owner — regardless of financial literacy, and whatever the legal structure — can complete it and understand its output.
BusinessSolvency translates the Sustainable Cashflow Formula into a governance workflow that any business owner can follow. It is not accounting software. It does not replace the work of accountants, lawyers, or insolvency practitioners. It is the instrument by which an owner can satisfy themselves — and demonstrate to others — that they have tested solvency before finalising a reporting period or approving a forecast.
The platform implements the three-step Sustainable Cashflow Formula workflow:
Integrated three-statement analysis of the historical reporting period. Tests whether cash IN covered all cash OUT using the Sustainable Cashflow Formula applied to real financial data.
Calculates the Sustainable Cashflow Breakeven for the forecast period — the minimum revenue required to meet all obligations. Not accounting breakeven. Solvency breakeven.
Generates an owner-ready solvency report — a defensible contemporaneous record that the Sustainable Cashflow Formula was applied and solvency was tested before the period was signed off.
The platform is designed as a disruptive solution in the Christensen sense: simple, affordable, consistent, and accessible to business owners who are not financial specialists. It addresses the job that owners actually need done — testing solvency at the governance level — rather than the job that accounting software is designed to do, which is financial reporting for taxation and statutory purposes.
Accounting software produces the numbers. BusinessSolvency tells the owner what those numbers mean for their financial exposure.
BusinessSolvency is the three-step governance workflow that turns financial data into ready-to-act solvency decisions — grounded in seven years of independent research, the Sustainable Cashflow Formula, and Australia's business governance framework, whatever the legal structure.
BusinessSolvency — Solvency Platform for Every Business Structure, 2026For governance professionals evaluating BusinessSolvency for recommendation to business owners, boards, or clients, the platform offers a documented, repeatable process that is aligned, for company clients, with the obligations established by Section 588G and the standards articulated in ASIC Regulatory Guide 217 (December 2024) — and offers sole traders and partnerships the same rigour, applied to the direct personal exposure they already carry. It is the first platform of its kind in the Australian market, for any business structure.