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SWOT analysis: 4 easy steps to start a business plan
By Kevin Appleby
When I teach Budgeting and Cost Control the first thing I talk about is the importance of business strategy and the need for a clear business plan. The business plan should be central to everything a business does. The plan is an organisation’s compass, showing the direction of travel. The budget is simply one tool that helps achieve the plan. Without a plan to underpin the budget, it will be of little use.
The starting point for cost management is determining whether spending aligns with the business plan and it’s surprising how many organisations do not have a good plan. When I coach business owners on strategies for doubling profits, the strategic plan is the first thing we work on.
There is a whole range of strategic planning tools you can use, but my favourite starting point to develop the plan is a simple SWOT analysis. A SWOT analysis lets you understand the strengths, weaknesses, opportunities, and threats affecting your business. SWOT is a great way to start understanding some of the most important things to cover in your business plan.
And SWOT analysis isn’t just for strategic planning. Once you understand how to use the tool you can apply it to decision-making in all sorts of circumstances.
What is a SWOT analysis?
A SWOT analysis takes its name from the first letters of the four aspects of your business that it analyses:
- Strengths the business possesses
- Weaknesses that might prevent the business from achieving success
- Opportunities that the business might take advantage of
- Threats that might impact on the business
The SWOT analysis is quite straightforward; it involves capturing the Strengths, Weaknesses, Opportunities and Threats that are relevant to your current business situation and evaluating these to develop plans to address them.
Why are you doing a SWOT analysis?
Your business plan will need to articulate the things that will make your business a success, and it needs to demonstrate clearly:
- How you will use your strengths to take advantage of opportunities.
- How you will overcome weaknesses preventing you from taking advantage of opportunities.
- How your strengths will cut the likelihood of threats.
- What you will do about your weaknesses to make the threats less likely.
How do you build a SWOT analysis?
1) Ensure you have a view of where you want to be as a business
You will need a view of what you want to achieve with your business, not just in the short term but the next 3 to 5 years. You probably have this already, but if not it’s worth spending some time to think about this before you start the SWOT. You will have lots of Strengths, Weaknesses, Opportunities and Threats, but it’s only the ones that have an impact on your business vision that are important.
If you are working with a business partner or a senior business team, having a shared vision is very important. Before you can set specific business goals and objectives and pull together the plans that will get you there, you need some idea of the endpoint you are aiming for. Ask each of the senior team to write their own vision of what the business will be like in 5 years’ time and then share these among the team, discuss any differences in viewpoint and come to a shared view.
2) Complete a SWOT matrix
You can complete a SWOT analysis by yourself, but if you are part of a business team, then the first step of the SWOT analysis lends itself to a workshop. The senior people within the business use their collective knowledge to brainstorm each group in turn and capture the strengths, weaknesses, opportunities, and threats pertinent to the business in a matrix.
It’s important to understand the definition of the four boxes before you start:
- Strengths and weaknesses are internal to the business and generally are under your control.
- Opportunities and threats are external forces that act upon the situation and are generally uncontrollable.
Getting this wrong can make the later stages of the analysis more difficult, so to be clear:
- Strengths – are positive attributes internal to the business that are within your control.
- Weaknesses – are also internal factors within your control that may impede your ability to meet your goals.
- Opportunities – are external factors that the business could develop.
- Threats – are external factors beyond your control that might place the business at risk.
- Identify each strength, weakness, opportunity or threat within the context of your shared vision for the business.
- Be realistic about your strengths and weaknesses; it’s very easy to overemphasise your strengths and underplay your weaknesses.
- Be specific ― only include key points and issues, back these up with evidence, not here-say.
- Don’t spend too much time capturing this information and don’t over analyse. Aim to only include key points. All we are doing at this stage is capturing ideas that will allow us to kick-start the analysis process.
You can do parts of the analysis using more in-depth tools. The SWOT analysis is a useful way of drawing together the various analyses that you might undertake. I’d usually recommend using a PEST or PESTLE analysis to scan the horizon for the changes that might be coming along in the future, look at the opportunities and threats that arise from these and feed them into the SWOT.
There are other more advanced tools, but there are lots of merits in keeping things simple and sticking just to SWOT, and perhaps PESTLE, especially if you are a new business. Porter’s Five Forces also provides a good tool for scanning the external environment. Likewise Porter’s Value Chain can help with the internal environment and inform your assessment of strengths and weaknesses in the business. We run through each of these in the budgeting and cost control course.
It’s important to be thorough with this first brainstorm and consider all the factors that are relevant to your business situation. To help we’ve developed a checklist. Complete the form at the end of the article, and we will send you a copy.
3) Rank in order of importance
The brainstorm will have unearthed a whole range of factors; some will be more important than others. We need to find the ones that we will focus on. Rather than trying to decide an exact order, score each factor with a High, Medium or Low level of importance. This won’t be an exact science but will help us in the next exercise.
4) Use the SWOT analysis to start developing a Strategic Plan
The next stage of the analysis is to take the highest-ranking strengths, weaknesses, opportunities and threats and answer the following questions:
- How do you use your strengths to take advantage of opportunities?
- How do you overcome weaknesses preventing you from taking advantage of opportunities?
- How can your strengths cut the likelihood of threats?
- What can you do about your weaknesses to make the threats less likely?
The answers to each of these questions will begin to shape the action plan that will move the business forward. Look out for my next article where I will cover the development of the plan.
Kevin will be running his successful Budgeting and Cost Control for Managers event in London this November. If you are interested in joining this highly practical training course, please contact Helen or Donna in our Customers Services Team to discuss.
SWOT analysis is discussed in The Next 100 Days Podcast. You can listen here.
Read more articles by Kevin Appleby:
- Improving your Budgeting and Cost Control – Essential Listening
- Improving your Budgeting and Cost Control
- Management Accounting – Skilling up for success
- Have you set your personal and professional development goals for 2018 yet?
- Accountants - Do you know what support your business team really needs?
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