A financial SWOT analysis is a dissection of a company’s Strengths, Weaknesses, Opportunities and Threats. A SWOT analysis is an important part of a company’s profit plan and focuses on internal factors you can control (strengths and weaknesses) and external factors that you can proactively prepare for (opportunities and threats). An intelligent SWOT analysis will provide clear insight on these four key factors that will provide the framework for ongoing action plans.
Purpose and Process
The purpose of a SWOT analysis is to capitalize on the opportunities that will afford the firm the greatest benefit and evaluate the potential threats to minimize adverse effects.
How to begin? Here’s a step-by-step overview of the SWOT analysis process.
1) Define your internal factors
Strengths: Your businesses strengths are those things that provide you a competitive advantage in your market or field. These are areas where you have an edge over your competitor. You may already have a good idea of all the things your business has going for it, but it is also a good idea to ask your employees and customers for their opinions. Generally, these factors include things like skill sets, special or advanced knowledge, ability to produce profitably, low debt-to-equity ratio, low financial leverage, and others.
Weaknesses: Your weaknesses are things that compromise your company’s competitiveness, and are often areas where your competitor has the edge. They may include financial leaks due to operating practices, a slim profit margin, a skills deficit, high overhead, small net worth, etc.
2) Define your external factors
Opportunities: Your opportunities are the positive options the company could pursue to achieve its goals and objectives. They might include changes in your industry, be they regulatory or trends in consumer behavior, or changes in technology or local demography. It is important to evaluate all opportunities and select those that are most compatible with the direction of the company going forward.
Threats: Threats to your business are simply things that can inhibit the ongoing success of your company. They could be competitors, economic downturns, technological challenges, employee safety concerns, or financial problems, to name a few.
3) Share and prioritize
Once your lists are complete, share them with other owners and managers and group them within their respective categories according to priority, ease of completion, and length of time required for implementation or correction.
4) Capitalize and overcome
Finally, you establish financial goals and targets that capitalize on strengths and opportunities and help to overcome or minimize weaknesses and threats. You can use a goals worksheet to summarize goals your company will focus on to improve your profitability and financial strength during the coming year or two. At minimum, the goals worksheet should provide a place to record the priority and expected date of completion for each goal.
Once goals are chosen and recorded, you can use an action plan worksheet to further define the steps required to accomplish each goal. This more detailed worksheet should provide a place to prioritize steps, describe the step, record a target completion date, define the person(s) responsible for each step, and register completion.
To see more about how a completed SWOT analysis fits in to the overall profit plan, download our Owner’s Guide to Profit Planning.