Is Your Financial Controller Watching for These 5 Red Flags?

In the fast-moving world of small and midsize businesses (SMBs), financial oversight often takes a back seat to sales and growth goals. But when left unchecked, subtle shifts in cash flow, margins, or payment cycles can quickly snowball into crises.
That’s where a financial controller becomes indispensable. More than just a number cruncher, a controller acts as your company’s financial compass—guiding decisions, mitigating risk, and spotting red flags before they turn into red ink.
In this article, we highlight five of the key financial warning signs controllers can flag early—and what SMBs can do to respond proactively.

Why Controllers Matter in Financial Health

A small business financial controller acts as the bridge between day-to-day operations and long-term financial strategy. They're responsible for translating raw financial data into insights that keep your business solvent and scalable.
Without this function, many business owners risk missing the early warning signs of financial distress—like slipping margins or payment delays—that signal deeper issues ahead.

1. Shrinking Cash Runway or Reserves

The red flag: Your business consistently has fewer than three months of cash on hand.

Running low on cash reserves is like flying without fuel—you can only glide for so long. According to CB Insights, 38% of startups fail because they run out of cash source.

What causes it:

• Overspending during growth
• Delayed receivables
• Lack of budgeting or forecasting

What a controller does:

• Implements rolling 13-week cash flow forecasts
• Establishes monthly cash reserve targets
• Identifies cost-cutting or working capital optimization opportunities

If your cash balance covers less than 90 days of operating expenses, it's time to reassess your financial cushion.

2. Declining Profit Margins

The red flag: Gross or net margins are trending downward, even if sales are stable.

Margins below 20% may be a red flag, especially if costs are climbing faster than revenue. Profitability erosion is often the first signal of inefficiency, poor pricing strategy, or supplier issues.

What causes it:

• Inflation-driven supplier price increases
• Operational inefficiencies
• Product/service underpricing

What a controller does:

• Breaks down margins by product, service, or client
• Recommends pricing adjustments or cost renegotiations
• Models impact of margin improvements on overall profit

Example: A 5% improvement in margins for a $5M business could increase bottom-line profit by $250K—without adding a single sale.

3. Increasing Accounts Payable and Late Payments

The red flag: You're delaying payments to vendors—or your accounts payable balance is growing steadily.

Delayed payments may seem harmless, but over time, they erode supplier trust and often lead to stricter credit terms or price hikes. More importantly, they’re a clear sign of a cash flow crunch.

What causes it:

• Misalignment between receivables and payables
• Poor procurement planning
• Overspending without budget discipline

What a controller does:

• Reviews payment terms and supplier agreements
• Prioritizes essential payments vs. negotiable ones
• Sets up spend approval workflows to reduce unnecessary outflows

4. Poor Cash Flow Forecasting

The red flag: You’re surprised by shortfalls or struggle to cover predictable expenses like rent and payroll.

Many SMBs operate without a proper cash flow forecasting system, relying instead on bank balances. But this is reactive, not strategic—and it opens the door to financial blind spots.
According to a QuickBooks study, 61% of small businesses struggle with cash flow issues, often because they don’t forecast ahead.

What causes it:

• Lack of integrated forecasting tools
• Unpredictable billing cycles or collections
• No historical data analysis

What a controller does:

• Develops short- and long-term forecasts using scenario planning
• Aligns forecasts with budget and actuals for course correction
• Identifies seasonal or cyclical cash flow gaps

5. Inability to Meet Payroll

The red flag: You're delaying or struggling to meet payroll obligations.

This is one of the most urgent signs of distress. If you can't pay your people, it’s a clear sign your business is at risk of collapse. Not only are there legal consequences, but morale takes a major hit.

What causes it:

• Overhiring without revenue support
• Misaligned payroll timing with cash inflows
• Lack of emergency funding

What a controller does:

• Reforecasts cash to prioritize payroll and essential expenses
• Sets up alerts for cash position thresholds
• Helps secure short-term financing to bridge gaps

When to Outsource Controller Services

Many SMBs hit a ceiling where internal resources can't keep up with financial complexity. That’s when knowing when to outsource controller services becomes critical.

You should consider fractional or outsourced controller support if:

• Financial reports are delayed or incomplete
• You don’t have a cash flow forecasting system
• Your margins, cash position, or vendor relationships are deteriorating
• You're preparing for a growth phase or investor due diligence

Benefits of outsourcing:

• Access to experienced professionals without full-time costs
• Scalable support aligned to your business stage
• Objective, data-driven decision-making

An outsourced controller from The Finance Group brings industry-standard best practices to your finance function—delivering clarity, control, and confidence.

Final Takeaway: Proactive Oversight Prevents Business Failure

Financial red flags rarely appear out of nowhere. Most start as small signals—shrinking margins, rising payables, irregular cash flow—that escalate into crisis if ignored.
A financial controller, especially one who understands the unique pressures of small and mid-sized businesses, plays a critical role in preventing business financial failure. They're your internal watchdog, your strategist, and sometimes, your emergency responder.

Quick Recap: 5 Controller Checkpoints to Watch

• Low cash reserves (under 3 months)
• Falling profit margins
• Growing accounts payable
• Poor forecasting processes
• Trouble meeting payroll

If you’ve noticed any of these signs—or if you’re unsure where your business stands—now is the time to act.

Whether you need short-term clarity or long-term control, our team of experienced fractional controllers is here to help. We specialize in bringing stability, insight, and forward-thinking strategy to fast-growing and founder-led businesses.

Contact The Finance Group to schedule a financial diagnostic.