The Importance of a SWOT Analysis when Business Planning

 

People often ask me, what is the difference between a strategic plan and a business plan. Briefly, a strategic plan sets the strategic direction of a company; it will contain information about mission, vision and long-term direction. The business plan focuses primarily on forecasts and profitability, as well as focusing on the market, customers and operations.

A strategic plan focuses more on the mid to long-term, while a business plan focuses on the short to mid-term.

One key tool that is used in both plans is a SWOT analysis. While the marketing team often use it, the financial team use it quite a bit too. We have found it an incredibly useful tool when working with our clients on their business plans, helping to bring clarity to their business.

What is a SWOT?

A SWOT is simply an analysis tool for your Strengths, Weaknesses, Opportunities and Threats.

Strengths and weaknesses look at internal factors, which a company can control. Opportunities and threats are externally focused and not within the control of the company.

Benefit of a SWOT

The main advantage of a SWOT when planning is its clarity. It gives a clear view of its advantages over competitors, where its weaknesses lie, so a company can either improve them or downplay them.

It offers a moment in time to analyse the opportunities it has and also recognise the threats that it faces.

When undertaking a SWOT analysis, it’s important to have as much information as possible – market knowledge, employee feedback, front line staff, sales staff and partners.

Let’s look at each element of the SWOT analysis tool.

Strengths

This is where a company looks at its competitive advantages. It looks at its resources – staff, financial, technology – and sees the strength within.

Another area to look at here is the process of production, manufacturing, distribution or service delivery. Similarly, bargaining power with suppliers and its leverage with them can be considered a strength. Also examined in this section is the company’s location, image and its reputation.

Weaknesses

I’ve been doing this for a long time now and some clients list an amazing amount of weaknesses, while some clients believe they have none.

The reality is that every company has weaknesses and you have two choices. One, to improve them or two, downplay them. If, for example, your competitor has a better location than you, other than moving next door, your location could be a weakness. Instead of focusing on it, downplay it and focus on other key strengths.

If your goal is to improve your weaknesses, think about the kind of implementation plan that would be needed to address this. Look at any roadblocks and assess progress regularly.

Opportunities

This is always a great area to discuss. Some clients have so many opportunities that the list goes off the flipchart page! It is important to identify opportunities – new markets, new ways to grow, changes in the marketplace, new technologies, new social change – so that the company doesn’t stagnate.

When you have a good handle on your financial position, you will be able to prioritise going after certain opportunities, knowing you’ve made an informed decision. This will also allow you to react quickly to such opportunities in the market.

Threats

This is the not so fun part of the analysis tool. However, it can’t be overlooked. It’s better to be aware of the threats, so the company can face them head on.

A key area to look at is understanding competitive threats – how they can get ahead of you and gain more market share.

There is a formula that really helps identify possible threats, outside of the competitive threat. It’s called the PESTLE formula – it looks at political, economic, social, technological, legal and economic threats.

By analysing and understanding the threats in this area, then a company can decide how to respond to the threats facing its business.

Regular Review

A SWOT analysis should be done on a regular basis. You can then assess if your company is facing any major changes and how it’s reacting to any threats. Running another SWOT could allow you to see the balance change. It’s good to be informed.

If you’d like to discuss anything in this article, please get in touch.

AG Associates is an accounting practice that specialises in affordable accounting and payroll solutions for the SME business owner. It’s new service Clarity combines online book-keeping with offline accounting to provide an instant snapshot of how a business is doing right now.

For further information please contact Angela at Unit 11, Eastgate Way, Little Island, Cork, 021 482 4723 or angela@agassociates.ie.