As the owner of a small business, you might spend a great deal of your time planning for the future and deciding what changes will be most beneficial for your company in addition to the many other responsibilities you have. When contemplating these decisions, what is your initial starting point?
One tool to use is a SWOT analysis that highlights the strengths, weaknesses, opportunities, and threats that exist within a business. When prepared correctly, it is a critical self-evaluation of your business, focuses on factors critical to planning, and identifies where your business is in relation to the competition. Working with a CPA can help to provide valuable insight and guidance for this analysis.
Every business regardless of size will have some elements in each of the four categories. Assuming the ultimate goal in business is to beat the competition, competitive strengths and untapped market opportunities must be capitalized upon while at the same time improving competitive weaknesses and diminishing external threats.
If you’ve never performed a SWOT analysis, now is the time to start! Depending on your company’s internal structure, prepare a SWOT analysis for the entire business or for each department or division that is later combined into a master SWOT analysis.
The individual four components of a SWOT analysis in more detail are:
Strengths – The strengths of a company are internal resources, processes, or procedures that a company does well. Examples might be: specialized skills, technologically advanced equipment, depth of management, experienced long-term employees, or financial resources. Obviously, the list of strengths can be quite short or lengthy, but it is the combination of all of the various strengths that give a company a competitive advantage in the marketplace. The accumulated strengths have a synergistic effect that make a company valuable.
Weaknesses – Weaknesses are internal resources that a company does not do well or something that a company completely lacks. These contribute to a company’s competitive deficiencies. As the number and magnitude of weaknesses increase, a company’s competitive disadvantage also increases allowing stronger companies to overtake companies with real or perceived weaknesses even faster.
As with strengths, the list of weaknesses can be either short or long. Some examples might be: lack of expertise in the field, weak brand image, high operating costs, or poor location.
Strengths and weaknesses of a company are like an equation – strengths on one side and weaknesses on the other. You don’t want this equation to be balanced!
Opportunities – Market opportunities play a major role in a company’s strategic plan. Growth and profit are based on a company’s ability to capitalize on new opportunities. Some opportunities are realistic for a business to undertake, while other opportunities are unrealistic due to a company’s lack of internal resources and strengths.
Opportunities can arise due to one or many factors being present. Economic conditions, global demand, customer preferences, product innovations, etc. all have a bearing on what opportunities might exist and how those opportunities can be seized upon to be a rival competitor in the marketplace. The best new market opportunity for a company is to match all of the company’s internal resources and strengths with an opportunity that has the potential to yield maximum profit with the most competitive advantage for the company.
Threats – Numerous threats will always exist for any business. These external threats can hinder a company’s profitability and competitive edge. Older threats will remain while new threats can arise because of external factors which the company has little or no control over. To lessen the negative effects of potential threats, a company must foresee some of the threatening elements and know in advance what course of action to take as soon as an external threat is clearly identified to either neutralize or lessen the threat, as much as possible.
Let’s begin – Start with clean slate – a sheet of paper or a white board – divided into four parts. The titles – Strengths, Weaknesses, Opportunities, and Threats -each go in a separate box. Begin brainstorming and list each factor in the appropriate category. The SWOT analysis should be a work-in-progress as various factors continue to change – new strengths emerge, weaknesses develop, opportunities present themselves, and threats arise.
As you can see, doing a SWOT Analysis on your business is definitely worth it. If you need assistance with creating a SWOT analysis for your business, please contact us. Our business is growing your business. You can find us on the web at http://www.LStortzCPA.com