How to read the colours in this manual
- Green — the point of the chapter
- Yellow — remember this; also the point of the chapter in Chapters 2B and 2C
- Light pink — watch out; also the point of the chapter in the club worked examples (8D and 8E)
- Burnt orange — urgent: this will catch you out; also the point of the chapter in Chapter 2A
- White — notes and explanations
- Green, amber, red headers — the platform’s own traffic lights in the worked examples
This platform did not begin in a university or a consulting firm. It began with the experience of small business closure — my own, and the closures I witnessed around me over many years of operating and advising in the SME sector.
What I observed, again and again, was that businesses were not forced to close because their owners were incompetent or their products were poor. They were forced to close because nobody had ever shown them how much revenue they needed to generate each period to pay every bill — not just operating expenses, but loan repayments, creditor commitments, tax obligations, and private drawings. The profit and loss statement told them how profitable they were. The cashflow statement told them what had happened. Neither told them what they needed to do next to survive.
That gap — between what the accounting profession measures and what a business owner actually needs to know — became the obsession of the next decade of my working life. BusinessSolvency is the result.
In April 2016 I completed my initial analysis of Australian business startups and closures. The numbers were staggering and have stayed with me ever since.
My 2016 estimate — 250,000 sole traders exiting annually at $25,000 each in capital commitments, plus 50,000 micro businesses at $100,000 each — produced a figure of approximately $11.25 billion in losses per year in Australia alone. Extrapolated to the United States, the equivalent figure would exceed $20 billion annually. These are not abstract economic statistics. Each number represents grief, family breakdown, loss of a home, and in some cases the end of a life.
That observation was written in 2025. By December 2024, ASIC had finally acted — for incorporated companies. The regulatory learning — delayed by nearly a decade — had arrived, though only for one part of the market this research had always covered. For a sole trader or partnership, no such regulatory moment was ever coming, because there was never a regulator positioned to require it — the exposure was, and remains, direct and personal from day one.
My research led me deep into the history of how financial analysis and accounting software developed — particularly in the United States. What I found was a profession shaped by a specific and deeply entrenched culture: profit maximisation and compliance reporting for taxation authorities.
Clayton Christensen's work on disruptive innovation — particularly The Innovator's Dilemma (1997) and Competing Against Luck (2016) — helped me understand how industries get locked into serving their best customers while neglecting an unserved need. The accounting software industry did exactly this. Xero, MYOB, and QuickBooks all evolved to serve the compliance culture: reporting profit to the ATO, producing true and fair financial statements for auditors and lenders. They are brilliantly designed for that purpose. But what they do is not cashflow management for trading survival.
Milton Friedman's 1970s doctrine of profit maximisation for shareholders — documented by Simon Sinek in The Infinite Game — became the operating philosophy of finance broadly. Accountants and their advisors focused on the profit and loss statement and the balance sheet. The cashflow statement became an afterthought. Yet it is the cashflow statement that tells you whether a business can pay its bills next month.
Professor Roger Martin's work on the difference between strategy and planning gave me the language to express why this matters, at whatever level a business is run. Owners spend enormous effort correcting estimated expenses and sales expectations in operational plans — but those plans are built on profit logic, not cashflow logic. They do not ask the right question: how much revenue must this business generate to pay every cash commitment in this period?
The structural gap — stated plainly
Accounting software was built to answer the question: how profitable are we?
BusinessSolvency was built to answer the question every business owner should be asking, whether or not the law compels it: can we pay our debts as they fall due?
These are different questions. They require different tools. For the first time, business owners of every structure have a tool built specifically for the second question.
Over a decade of research and iteration, I developed what I call the Sustainable Cashflow equation. It is deceptively simple but structurally different from anything in standard financial practice. In plain terms, the Sustainable Cashflow Formula is a test of balanced cashflow: is all cash IN equal to or greater than all cash OUT, every trading period.
The critical difference from a standard profit plan is the inclusion of capital repayments, private drawings, and reserve requirements. These are cash obligations that do not appear on a profit and loss statement. A business can show a healthy accounting profit and still be insolvent because it cannot meet these commitments. The revenue breakeven point for cashflow sustainability is almost always substantially higher than the revenue breakeven point for accounting profit.
The gap between those two numbers — the accounting breakeven and the cashflow breakeven — is the danger zone where profitable businesses become insolvent. It is the zone BusinessSolvency is designed to identify, monitor, and report on continuously.
When the cash balance at the start and end of a trading period is equal, the business is at cashflow breakeven. When it is less, the business is in deficit — and each deficit period erodes the reserves that protect against the next crisis. This is the Sustainable Cashflow framework in its simplest form, and it is the analytical engine at the heart of BusinessSolvency.
I will be honest about the journey. For most of the years I spent on this research, the response from accountants, their advisors and other financial professionals was indifference at best. The cashflow management culture I was advocating was not the culture of the profession. The profit culture dominated, and it still dominates. Experienced accountants, their advisors and business owners understood the importance of the cashflow statement — but they were busy, and the tools they used did not require them to think this way.
Professor Amy Edmondson's research on how organisations resist acknowledging dangerous signals helped me understand why. In her book Right Kind of Wrong (2023), she documents how intelligent, experienced professionals can systematically fail to act on evidence of risk — not from malice, but from the cultural pressure to confirm existing practice. The financial profession's focus on profit reporting is not wrong. It is simply incomplete for the purpose of solvency governance.
The frustration of those years — of knowing that the gap existed, that businesses were being forced to close unnecessarily, and that the profession was not addressing it — is what drove this project through to completion. The research was always right. What was missing was the regulatory moment that would make the profession listen — even though that moment, when it came, would only formally apply to one part of the market this research had always covered.
That moment arrived in December 2024.
In December 2024, ASIC updated Regulatory Guide 217 — Duty to Prevent Insolvent Trading — significantly expanding what incorporated companies are now required to do to monitor solvency, and confirming that the obligation is proactive, not reactive.
What this means if you're trading as a sole trader or partnership
None of it changes your legal position, because none of it was written for you — Section 588G and RG 217 both apply to companies specifically, and sit outside your business structure entirely. What it does confirm is the underlying principle this research was built on for a decade before ASIC ever moved: continuous, independent, documented monitoring of the cashflow position is what actually protects a business, regardless of who's required to do it by name.
For a sole trader or partner, that exposure was never something a regulator needed to define. Every dollar the business owes is already owed by you personally, with no regulator monitoring the pathway at any point before a creditor acts — arguably making the same discipline more urgent, not less, since there's no statutory safe harbour standing behind you if things go wrong.
The obligation that BusinessSolvency was built to meet — continuous, independent, documented solvency monitoring — has been simple good sense for every sole trader and partner all along, whether or not a regulator ever puts it in writing.
BusinessSolvency did not create this obligation for you. It was always there, the moment you started trading without a company standing between you and the debt. The platform simply gives you the tool to meet it — independently, continuously, and in plain language that does not require an accounting degree to understand.
The research was always right. The regulatory framework has now caught up with it, for part of the market — and the platform was always built for the whole of it.
Key sources drawn on in this chapter
- Clayton Christensen — The Innovator's Dilemma (1997, 2016); The Innovator's Solution (2003); Competing Against Luck (2016); The Innovator's DNA (2019)
- Professor Roger L. Martin — Playing to Win (with A.G. Lafley); HBR articles on strategy vs. planning (2022)
- Professor Amy Edmondson — Right Kind of Wrong (2023)
- Professor Tom Eisenmann — Why Startups Fail (Harvard Business School)
- Simon Sinek — The Infinite Game (2019)
- Peter Thiel with Blake Masters — Zero to One (2014)
- Ilya Strebulaev and Alex Dang — The Venture Mindset (2024)
- ABS Business Entry and Exit Statistics; Reserve Bank of Australia SME survey data
- CBInsights — Top 12 Reasons Startups Fail (2021)
- ASIC Regulatory Guide 217 — Duty to Prevent Insolvent Trading (updated December 2024)
- Stephen Fairbairn — Sustainable Cashflow Manual, January 2025 (primary source throughout)
- Stephen Fairbairn — Initial research note, April 2016 — Australian business closure costs