I’m not sure what my vulnerabilities are…

It is generally accepted that around half of new businesses have packed up within the first three years, usually for reasons ranging from poor financial planning to weak market research and lack of a growth strategy.

But weaknesses such as these can be damaging to a business at any stage of its development - particularly when market conditions change and businesses need to adapt to survive.

Knowing your weak points is crucial to developing a robust business. But how do you work out what they are? A SWOT analysis is perhaps the best way to identify issues you need to address systematically.

Conducting a SWOT analysis

SWOT stands for (S)trengths, (W)eaknesses, (O)pportunities and (T)hreats. Conducting a SWOT analysis involves creating a list of each for different aspects of your business; then considering what you need to change in order to make your business stronger.

In general, strengths and weaknesses would apply to the way you run your business - your administrative systems, your workplace policies, your premises, your financial processes, staff, sales channels, and so on.

Under opportunities and threats, you are more likely to look at external factors that affect your business - your competitors, your customers' expectations, regulatory changes, and so forth.

Getting started

Start by assessing your business plan and then use that as the basis for a more detailed analysis. Does your plan cover the key areas of your business? It should contain information about your offer, your marketplace, marketing strategy and sales strategy, management team, operations, financial forecasts and growth strategy.

Does this information realistically reflect where your business is and where it's heading? Now look at each area in more detail and list strengths, weaknesses, opportunities and threats as appropriate.

In particular, it's worth noting the areas where small businesses most commonly fall down:

• selling a product for which there is no demand
• paying bills promptly, but allowing customers to pay late
• planning based on unachievable sales targets
• no growth strategy
• ignoring competitors
• poor recruitment and staff management
• unfavourable contracts with suppliers, landlords, etc.

Take action

A SWOT analysis is a tool for change, not an end in itself. Once you have identified the vulnerable areas of your business, prioritise them and develop plans for dealing with them. Note these in your business plan if necessary.

Ideally, you should carry out a SWOT analysis fairly regularly. You don't have to do it yourself, but can delegate tasks to employees, employ an outside consultant (if you have the resources) or even consider bringing in a non-executive director who can give you an objective assessment of your business.

Even if you don't look at every aspect of your firm, a SWOT analysis will help you keep in touch with your operation and your marketplace, and give you a greater chance to adapt and prosper when confronted with challenges and new opportunities.