Businesses of any age and at any stage can find themselves in difficulty, however the first 6 to 24 months are often the most traumatic, with the highest failure rate being in this period. Not all of these count as failures, most of these early closures are voluntary.

If you are still barely making a living, are constantly short of cash and are working ridiculous hours, you need to have a hard look at your business. The difficulty is to recognise the warning signs in time. People often see their business as an extension of their personality, and only continue because of pride. This is human nature. However, it can lead to a more painful demise further down the line.

A business is not really established until it is generating a reasonable income for its owner and is financially sound. Often these things will not be achieved for a few years. During this period, learning takes place very fast for the owner. No matter how good the original business plan, many of the problems that arise will be unexpected. These early problems can be divided into four categories:

Preparation problems

Problems arising from not preparing well enough before the business was launched (even though your preparation may have seemed good enough at the time).
These include problems such as:

• Product or service does not meet customer needs.
• Customer demand is not high enough to make a living.
• The business proves to be short of capital.
• The costing and pricing policy is not right.
• Difficulties emerge in relationships with partners, family, suppliers or customers.

Although these problems are common, they can eventually destroy your business so it is vitally important that they are dealt with promptly.

Unforeseen problems

Problems beyond the control of the business and are difficult to predict.
These include things such as:

• Downturn in economy.
• Changes in the law.
• Major changes in customer needs.
• Changes of important people (such as a key employee, supplier, bank manager).

Because these problems can not be predicted they are harder to overcome and usually need a major rethink of the way you run your business.

Information problems

Problems arising from information systems do not deliver enough of the right information to management. Too often businesses ignore their information needs because they are not 'money generating'; when problems do become evident it is too late to deal with them. Because of this simple control systems should be in place to monitor:

• Sales performance and customer feedback.
• Resource use during production.
• Profit margins and cash flow.

'Strategic' problems

Problems arising from a lack of longer-term planning, often brought about by stress and time pressures. Strategy planning does not need to be a formal process. Above all, it is an attitude of mind.
When planning strategy consider the following:

• Try not to depend too much on a single customer or supplier.
• You must plan how to fund the business in the future.
• You must keep in touch with the outside world in order to anticipate problems and opportunities.

Obviously, problems are bound to occur. It is essential to recognise the real causes of difficulties (as opposed to the symptoms) and respond to them. If you treat symptoms rather than causes, the relief will only be temporary and it is likely that problems will re-appear. Much can be learned from making mistakes. The secret is not to make the same mistake twice. Remember, the successful business-owner regularly compares actual performance against the original plan. Quite often, the business will find success offering products or services that are different from those set out in the original plan.