What is SWOT analysis?

What is SWOT analysis?A SWOT analyis is a tool to help you identify the opportunities and threats facing your business. The term SWOT is an acronym formed from the words Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are internal characteristics of your business; opportunities and threats are external factors.

An accurate, comprehensive SWOT analysis is a very beneficial tool which allows you to consider internal and external factors that affect or could affect your business. Get it right and you'll have gone a long way towards collecting information which will help you develop a well-informed business management and development strategy

Your business and marketing plans should contain SWOT analyses. This indicates that you have a good awareness of your business and its market position. Performing a SWOT analysis on your key competitors can also be very beneficial.

The term SWOT is an acronym formed from the words Strengths, Weaknesses, Opportunities and Threats. Strengths and weaknesses are internal characteristics of your business, while opportunities and threats are external factors.

Be honest and thorough when making your SWOT analysis.

Strengths and weaknesses

Your business strengths provide you with opportunities. Your weaknesses pose a threat.

Begin by identifying strengths. Draw a cross on an A4-size piece of paper and list your strengths in the top left-hand space. These could include healthy cash flow, market-leading products, high-calibre employees, an enviable customer base and premises in a good location, for example..

In the bottom left-hand section itemise your weaknesses. This could include lack of capital, renting premises, skills shortage, being stock-heavy, overdependence on a few customers, paying the minimum wage and so on.

Opportunities and threats

Next, list business opportunities in the top right-hand section, using what you have written down as your strengths to guide you. For example, healthy cash flow offers the opportunity to borrow money to develop your business, while having the latest technology might allow you to develop a new product or increase current output. A market-leading position might enable you to buy a competitor and secure a larger market share.

Finally, in the bottom right-hand section, write down all the threats your business faces, many will be a result of your weaknesses. For example, overdependence on a few customers will have serious repercussions if one of them goes bust or decides to buy from another supplier, while only paying minimum wages can force good employees to go elsewhere.

Not all threats are caused by a firm's internal weaknesses, of course. Interest rate rises can have a catastrophic effect, as can cheap imports, fuel-price rises and so on.

Management strategy

When drawing up a strategy to act on the findings of your SWOT analysis, seek the opinions of others whose opinions you value - maybe a senior employee, fellow manager, owner of a non-competitor business or professional business adviser. They might be able to provide additional input.

When the document is finalised you can begin to devise a business-management/development strategy aimed at capitalising on opportunities and dealing with or warding off threats.

Opportunities and threats should be prioritised in terms of likelihood. Your strategy should aim to exploit the most likely opportunities and protect you from the most clear and present dangers.

Your management strategy is also likely to involve safeguarding and enhancing your strengths, while addressing your weaknesses with practical solutions. The opportunities you have highlighted can also help you draw up a marketing plan or revise an existing one.

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