What is a Financial SWOT Analysis?

October 24, 2017 by Gordon Advisors

A SWOT analysis is a dissection of a company’s strengths, weaknesses, opportunities and threats. A SWOT analysis focuses on internal factors over which you have control (strengths and weaknesses) and external factors which 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

The object 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.

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. These may include special resources, unique talent, knowledge base or even your network. Some of these strengths may be on the tip of your tongue, but until you begin to spell each one out, you may be underutilizing every one of your advantages. Furthermore, you may need to conduct client or customer research to see what your strengths are from an outside perspective.

Weaknesses

Your firm’s weaknesses are those things that detract from your ability to compete. These are areas where your competitor has an edge over you. They may include financial leaks due to operating practices, a slim profit margin, or a skills deficit. Again, without a sober look at each one of your weaknesses, from an internal perspective as well as from the perspective of those in your market, you will be underprepared to buttress against and adjust your strategy in relation to these weaknesses.

Opportunities

Opportunities are the positive options the company could pursue to achieve its goals and objective. Opportunities might include changes in your industry, be they regulatory or in consumer behavior, or changes in technology or local demography. It is important to evaluate all opportunities and select those that are most congruent with the future direction of the company.

Threats

Threats are another external characteristic that face the company on an ongoing basis. Threats pose negative consequences to the company which may somehow inhibit the company’s ability to achieve its objectives. Threats may include lending barriers or economic fluctuation. Interestingly, some of the same factors that may be opportunities may also be threats, depending on your business and how the changes take shape, such as demographic shifts, technological advances, and government policy.

These are the four essential components that make up a SWOT analysis. The next blog post in our profit planning series will outline how to execute a SWOT analysis. For a more comprehensive breakdown on all facets of profit planning, download our Owner’s Guide to Profit Planning.

 

If you don’t know where to start or if you’d like to have a third party person assist you with the process – give me a call at 248-952-0269 or email me at jeff.farrington@gordoncpa.com, I have decades of experience in management and improving operational performance.