The story in one minute
- In FY2026 Coastline renovated for $2,600,000, borrowing $2,000,000 to do it.
- In FY2027 trade fell 8% and the club lost $717,000.
- A $400,000 short-term loan and slower payments to suppliers kept the bank at $458,790, higher than the year before.
- If the board carries on as before, the club is overdrawn by $148,252 in FY2028 and by $1,608,587 by FY2030.
- Its directors carry the full company-director duty. The time to take advice was FY2027, while the club still had choices.
⚠ A fictional club, real arithmetic
This club is fictional, built from patterns common in Queensland clubs. Every figure in this chapter comes from the BusinessSolvency calculation engine. FY2025–FY2027 are the “actual” years; FY2028–FY2030 are the forecast, marked (F). General information only, not financial or legal advice.
In short: a Queensland leagues club turning over about $10 million a year, run by a volunteer board of directors.
Coastline Leagues & Community Club Ltd is a fictional licensed club in Queensland: bars, a bistro, function rooms and gaming machines, with about $10 million of revenue a year and a large staff. It is a company limited by guarantee, so its volunteer directors are company directors, and the section 588G duty not to let the company trade while insolvent applies to them in full (Chapter 2A).
Most of its income comes from members, which is not taxed. It pays tax only on its trade with non-members, which works out at an effective rate of 7.5% of its surplus (Chapter 2C.3). It owns its premises, valued in the accounts at $5,500,000.
In short: cash looked steady for three years, then the forecast falls off a cliff.
Coastline: cash at the end of each year
FY2025–FY2027 actual, FY2028–FY2030 forecast if the board carries on as before (shaded). Note that cash at the end of FY2027 was higher than the year before, in the year the club lost $717,000.
In short: a borrowed renovation, then a downturn; by FY2027 the club was losing $717,000 and holding up its bank balance with a short-term loan and unpaid suppliers.
Revenue of $9,900,000 left a surplus of $486,550, and cash closed at $406,000. Trading cash covered loan repayments about three times over. One quiet warning: short-term assets only just covered short-term debts ($1.14 for every $1 owed).
The board renovated the club for $2,600,000, borrowing $2,000,000 to pay for it. Long-term debt rose to $2,950,000. Revenue grew 5% to $10,400,000, but interest doubled and depreciation rose, so the surplus fell to $309,320. Counting every payment, including the renovation, the club only just paid its way ($863 short).
Spending at the bar and on the machines fell, and revenue dropped 8% to $9,550,000. Wages, insurance and interest did not fall. The club made a loss of $717,000. Trading cash of $47,290 could not come close to covering $250,000 of loan repayments (loan cover 0.10).
To keep going, the board took a $400,000 short-term loan, and suppliers waited longer to be paid: what the club owed them rose from $460,000 to $690,000. Short-term debts now outweighed short-term assets ($0.63 for every $1 owed).
And the bank? $458,790, higher than the year before.
In short: in FY2027 BusinessSolvency flagged threatened borrowing, loan repayments not covered, and short-term debts larger than short-term assets.
- Threatened borrowing: BusinessSolvency flagged $300,000 of the new loan as borrowing that paid for no equipment and no reserve (the $400,000 loan less $100,000 spent on equipment). Borrowing to cover running costs buys time, then makes things worse.
- Loan repayments not covered: trading cash covered only about a tenth of the loan repayments (loan cover 0.10).
- Short-term debts larger than short-term assets: $0.63 for every $1 owed, down from $1.10.
- Suppliers stretched: what the club owed suppliers rose by $230,000 in a year (49 supplier days against agreed terms of 15, 34 days past; a cash conversion cycle of 1 day in the club’s favour, but only because suppliers are kept waiting: Manual 11.9).
Watch out: the target looked met, and that is the trap
In FY2027 the club technically met its Sustainable Cashflow target, by $134,390. That was only because the $400,000 short-term loan counts as cash coming in. This is exactly why BusinessSolvency flags threatened borrowing on its own: a target met with borrowed money is not a target met.
In short: revenue up 3% a year, costs up 4%: the club runs out of cash in FY2028 and is $1.66 million overdrawn by FY2030.
Revenue grows 3% to $9,836,500, but costs rise 4% with inflation, so the club falls further behind in real terms. The loss is $806,620 and the bank is overdrawn by $148,252. Trading cash does not cover loan repayments at all.
Revenue grows 3% to $10,131,595, but costs rise 4% with inflation, so the club falls further behind in real terms. The loss is $875,601 and the bank is overdrawn by $841,408. Trading cash does not cover loan repayments at all.
Revenue grows 3% to $10,435,543, but costs rise 4% with inflation, so the club falls further behind in real terms. The loss is $950,509 and the bank is overdrawn by $1,608,587. Trading cash does not cover loan repayments at all.
Urgent: this will catch you out
A forecast that shows the bank overdrawn by $148,252 next year, with short-term debts already larger than short-term assets, is a strong sign the club may already be unable to pay its debts as they fall due. The directors of a company limited by guarantee face the full section 588G exposure (Chapter 2A), including personal liability for unpaid PAYG, GST and super. Every new debt the club takes on from here is a personal risk for each director.
In short: take advice immediately, stop borrowing to cover running costs, and decide on a rescue plan while the club still owns valuable assets.
Unlike Riverbend, Coastline’s forecast does not include a rescue plan, so the options below are not modelled in the figures. They are the kinds of choices a board in this position could consider, with advice:
- Take advice now from the club’s accountant and a registered insolvency practitioner, before taking on any new debt.
- Consider the safe harbour (Chapter 2A.4). It can protect directors who are developing a plan reasonably likely to lead to a better outcome, but only if employee entitlements are paid, tax lodgements are up to date, and the steps are documented.
- Cut the cost base to fit the revenue: trading hours, rosters, and spending that does not pay for itself.
- Talk to the lender about the repayments before one is missed.
- Look at the assets. The club owns premises valued at $5,500,000. Selling or leasing part of them could repay debt, but only as part of a plan that also fixes the yearly shortfall.
- Tell the members, with the facts, at a general meeting.
Remember this
The BusinessSolvency score for Coastline’s actual years is 40 out of 100. Carrying on as before, the forecast score is 7. In FY2027 the club still had choices. Each year it waits, there are fewer.
In short: a large club can look safe on its bank balance while it is already in serious trouble.
- Look at the forecast, not the bank balance. Cash went up in the year the club lost $717,000.
- Borrowing to cover running costs is a warning, not a fix. The short-term loan made the year look better and the future worse.
- Revenue must keep pace with costs. Growing 3% a year while costs grow 4% is going backwards.
- Plan the running costs of a renovation, not just the build. Interest and depreciation rose immediately; the extra trade it was meant to bring did not arrive.
- Volunteer directors carry the full duty. Being unpaid does not lessen it (Chapter 2A).
The key figures for all six years, straight from the BusinessSolvency calculation engine. Directors can stop here, or read on.
In short: every key figure for FY2025–FY2030 in one table, with the cash movements and the solvency ratios year by year.
| Figure | FY2025 | FY2026 | FY2027 | FY2028 (F) | FY2029 (F) | FY2030 (F) |
|---|---|---|---|---|---|---|
| Revenue | $9,900,000 | $10,400,000 | $9,550,000 | $9,836,500 | $10,131,595 | $10,435,543 |
| Surplus or deficit (Net Income) | $486,550 | $309,320 | −$717,000 | −$806,620 | −$875,601 | −$950,509 |
| Tax on the surplus (7.5%) | $39,450 | $25,080 | $0 | $0 | $0 | $0 |
| Trading cash (operating cash flow) | $906,000 | $805,500 | $47,290 | −$207,042 | −$293,156 | −$367,179 |
| Spent on equipment and buildings | −$300,000 | −$2,600,000 | −$100,000 | −$150,000 | −$150,000 | −$150,000 |
| New borrowing | $0 | $2,000,000 | $400,000 | $0 | $0 | $0 |
| Loan repayments | −$200,000 | −$250,000 | −$250,000 | −$250,000 | −$250,000 | −$250,000 |
| Levies, grants and appeals | $0 | $0 | $0 | $0 | $0 | $0 |
| Cash at start of year | $0 | $406,000 | $361,500 | $458,790 | −$148,252 | −$841,408 |
| Cash at year end | $406,000 | $361,500 | $458,790 | −$148,252 | −$841,408 | −$1,608,587 |
| ATO amounts owing | $39,450 | $0 | $0 | $0 | $0 | $0 |
| Short-term loans | $0 | $0 | $400,000 | $400,000 | $400,000 | $400,000 |
| Long-term debt | $1,200,000 | $2,950,000 | $2,700,000 | $2,450,000 | $2,200,000 | $1,950,000 |
| Suppliers owed (trade creditors) | $420,000 | $460,000 | $690,000 | $700,000 | $700,000 | $700,000 |
| Sustainable Cashflow target: revenue above (+) or below (−) it | +$465,922 | −$863 | +$134,390 | −$745,090 | −$817,032 | −$904,291 |
| Loan cover (DSCR): trading cash ÷ loan repayments | 3.12 | 1.87 | 0.10 | −0.44 | −0.64 | −0.83 |
| Current Ratio: short-term assets ÷ short-term debts | 1.14 | 1.10 | 0.63 | 0.22 | 0.15 | 0.11 |
- Tax: 7.5% of the surplus (the company rate on the non-member share; Chapter 2C.3). No tax in loss years.
- Cash check: each year’s cash at year end equals cash at the start of the year, plus trading cash, less equipment and buildings, plus or minus the financing lines above; and each year starts with the previous year’s closing cash. It agrees to the dollar in all six years.
- The first actual year starts with an opening cash balance of $0 in BusinessSolvency.
- Threatened borrowing in FY2027 is the $400,000 new loan less the $100,000 spent on equipment: $300,000 that paid for no equipment or reserve.
- The Sustainable Cashflow target counts borrowing as cash in, so FY2027 meets it by $134,390 only because of the loan (Chapter 3).
- Forecast assumptions: revenue growth of 3% a year against 4% inflation; wages, insurance and overheads rising about 4% a year; the short-term loan and stretched suppliers not repaid; no rescue plan, and no cash reserve set aside while the club is overdrawn.
- Scores: the BusinessSolvency score is 40 out of 100 for the actual years and 7 for the forecast.
- See it live: during alpha testing, request access to open this club’s forecast in the BusinessSolvency app.