Valuation isn't just about your revenue or the size of your team — it’s about the strength and stability of your financials. Many business owners feel surprised when small problems lower the value of their hard-earned business.

At RJD Advisory, we regularly help owners prepare for valuation and exit. Here are five financial warning signs that can hurt your business valuation — and what you can do about them.

1. Cash Flow Problems

You may be profitable on paper, but if cash flow is unpredictable or tight, it raises a red flag.

Buyers and investors want a business that operates smoothly each day. They look for one that can pay suppliers, employees, and overheads without any stress. If you’re always managing payments or using short-term loans to get by, that instability affects value.

What to watch for:

• Late payroll or supplier payments

• Reliance on overdrafts or credit cards

• Frequent dips into reserves to cover bills

What to do: Improve your cash conversion cycle, issue invoices promptly, and build a cash flow forecast. A Virtual CFO can help bring structure and forward visibility.

2. Rising Debt Without a Clear Plan

Debt isn’t always a problem — in fact, it’s often a strategic tool for growth. But if liabilities are increasing without a clear repayment plan or matching uplift in revenue, it can become a major concern.

A high debt-to-equity ratio makes your business riskier in the eyes of buyers. It can also limit your valuation multiple, especially if repayments are eating into profits.

What to watch for:

• Growing debt with no defined timeline for reduction

• Using new loans to cover operating expenses

• No clear breakdown of good vs bad debt

What to do: Restructure debt where possible and separate growth finance from operational borrowing. Present a clear repayment strategy to reduce perceived risk.

3. Declining or Inconsistent Profit Margins

Strong and stable margins are a hallmark of a well-run business. If your gross or net margins are shrinking or changing unexpectedly, it could mean you have inefficiencies, pricing issues, or unplanned costs.

Buyers will look at your past performance. If your profits are inconsistent, it can result in a lower valuation.

What to watch for:

• Rising costs not passed on to customers

• Underquoting or over-servicing

• Reduced margins in key products or services

What to do: Review your pricing strategy, benchmark margins against industry standards, and identify where costs are creeping. Even small improvements can significantly boost your valuation.

4. Poor Financial Reporting and Visibility

A business that cannot clearly explain its financials struggles to win trust. Outdated, inconsistent reports that are only done at tax time show weak financial controls.

Good reporting boosts confidence. It’s not only about the numbers; it’s also about the people behind the business. If a buyer has to sift through disorganised books or wait weeks for financial info, they might lower their offer or back out completely.

What to watch for:

• Delayed or missing monthly reports

• No cash flow forecasts or budgets

• Lack of clarity on financial performance

What to do: Implement consistent monthly reporting and use that data to guide decisions. Accurate, timely reports are critical during due diligence — and show you're in control.

5. Missed Payments or ATO Liabilities

Unpaid BAS, superannuation, or tax obligations are red flags during valuation. These liabilities might not appear on the balance sheet. However, they can come up during due diligence. This can hurt trust and lead to price cuts.

Payment problems with suppliers or disputes with creditors can create doubts about cash management and the integrity of the business.

What to watch for:

• Outstanding tax or superannuation debts

• Payment disputes or frequent reminders from creditors

• Defaults or dishonours in your transaction history

What to do: Stay compliant with your obligations and keep payment arrangements up to date. If you’re behind, address it early and document any agreements in place.

Protecting Your Valuation Starts with Financial Clarity

Your business may have good revenue, loyal customers, and great potential. But if the financials say otherwise, it can all matter less than it should.

That’s why it's important to deal with these warning signs early. Whether you're planning to sell soon or just want to build long-term value, strong financial management is essential.

How We Can Help

At RJD Advisory, we support Australian business owners with:

🔹 Cash flow management

🔹 Financial forecasting and reporting

🔹 Valuation preparation and exit planning

🔹 Virtual CFO services tailored to your needs

We help you get the financials right — so when it’s time for valuation, you’re ready.

📞 Book a consultation today to explore how we can support your next step.