7 min read
October 26th, 2024
We all understand the importance of wellness checkups for maintaining the health of our bodies. We visit the doctor regularly to ensure our ongoing well-being by checking in on our vital signs and laboratory test results to make sure our physical systems are functioning properly. We also use these appointments to check in on ongoing health challenges like chronic illnesses in addition to setting goals like losing weight, exercising more, or eating a more nutritionally balanced diet.
Key Takeaways
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To quickly understand the importance and purpose of the SWOT analysis, business leaders should think of a SWOT analysis as a checkup appointment for a business.
What Is a SWOT Analysis?
A SWOT analysis is a tried-and-true method for evaluating a business's health. The process provides a four-quadrant approach to evaluating a business by listing, looking at, and analyzing its Strengths, Weaknesses, Opportunities, and Threats.
Through this process, business leaders look closely at the internal factors that do or could impact the business's health (strengths and weaknesses). Leaders also evaluate the external factors that do or could impact the business's health (opportunities and threats).
Is There a Difference Between a Business SWOT Analysis and a Financial SWOT Analysis?
A business leader can conduct SWOT analyses while focusing on particular aspects of a business, such as marketing, sales, or operations. However, there is not much difference between a general business SWOT analysis (i.e. one that looks at an organization as a whole) and a financial SWOT analysis because every aspect of a business impacts its financial soundness. For example, that which threatens a business's marketing or strengthens its operations also threatens or strengthens the business's financial health.
Read More: The Pros & Cons of Outsourced Accounting Services
Business Benefits: The Value of SWOT Analysis
In the broadest sense, the SWOT analysis process enables business leaders to maximize positive outcomes by replicating and emphasizing strengths in addition to capitalizing on opportunities. SWOT analysis also enables businesses to minimize negative outcomes by correcting weaknesses and avoiding threats.
On a more granular level, business leaders can also use financial SWOT analysis for business strategy development and SWOT analysis for financial decision-making. Business leaders can use the findings of a SWOT analysis to develop specific goals and strategies. They can then develop financial forecasts and models based on the outcomes of these strategies to help establish a goal-based budget, a growth forecast, an HR strategy, and an operating plan.
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Pro Tips: How to Conduct a Financial SWOT Analysis
Understand Your Purpose and Set Goals
The basic purpose of a SWOT analysis is to identify and understand the internal and external factors that are contributing to or detracting from your business's success. Once these factors have been identified, defined, and understood, they can be used to develop strategies. For example, using your strengths to leverage opportunities or minimize threats. You could also devise strategies that use opportunities to overcome weaknesses or minimize weaknesses in an attempt to reduce or avoid threats.
Some SWOT analyses can be performed with specific objectives and questions in mind. SWOT analysis can be used to help you make decisions like whether you should open up another location, roll out a new product or service, or expand your workforce.
Gather Resources (and Evaluate Your Data)
Next, determine what data sets you need to perform your SWOT analysis. This can include reports, inter-departmental information, external research and resources, and even specific individuals with a broad set of perspectives and knowledge (specifically, find a good combination of individuals with knowledge about internal forces and external forces). During this step, you should think about the kinds of information you have access to, evaluate their integrity, and make note of any data limitations that you encounter.
Each individual participating in the business's SWOT analysis will then create a list of ideas for each category that are eventually compiled into a complete, four-quadrant analysis.
Brainstorm: Focus on Internal Factors
Internal factors include the strengths and weaknesses of the SWOT analysis. These can be both tangible and intangible assets, operational efficiencies, financial factors, or related to human resources. To compile a thorough list of strengths and weaknesses, you can pose questions to those participating in the SWOT analysis.
Strengths
- What are we doing well?
- What is our best asset?
- Do we have any key personnel?
- What is our unique value proposition?
- Does the business have any advantages?
- Are any aspects of the business developed beyond the competition?
- What are our strongest revenue channels?
Weaknesses
- What isn't going well?
- What is our lowest-performing revenue channel?
- Do we have any underperforming employees?
- Do we have a good communication strategy?
- What processes are inefficient?
- What aspects of the business elicit negative feelings?
- What knowledge do we lack?
Brainstorm: Focus on External Factors
External factors of the SWOT analysis represent positive and negative forces outside of the business that impact its performance. These can include factors related to the market, economy, monetary policies, suppliers, costs, competitors, and trends. You can continue posing questions to compile external factors and spur insightful conversation.
Opportunities
- What positive trends do we see in the marketplace?
- What demographics have we not targeted?
- Could new technologies enhance our business?
- Could a partnership strengthen our brand?
- What products or services could improve our business?
- What ideas excite you?
Threats
- What negative trends do we see in the marketplace?
- Is the economy posing any current challenges?
- Are new technologies replacing our business?
- How many competitors do we have?
- What is the market share of our competition?
- Are new regulations or laws impacting our processes, operations, or products?
- Is anything keeping you awake at night?
Create a Financial Forecast
After thoroughly evaluating the four quadrants of the SWOT analysis, you can use your financial data to create a financial forecast. Model out best-case, worst-case, and middle-of-the-road scenarios. What will happen if you make no changes? What could happen if you do x, y, or z? Seeing the potential financial impact of your SWOT analysis findings will help you come up with a plan.
Read More: Financial Reports vs. Management Reports: What’s the Difference?
Make Decisions and Build a Strategy
After running the models and looking at the forecasts, work together to come up with strategies and make decisions for the future of your business. Specifically, consider how your strengths could be used to leverage new opportunities or avoid threats. Consider how new opportunities can be used to reduce your weaknesses. Looking at each strength, weakness, opportunity, and threat as a chess piece on a board, you can better visualize what your business has to work with, what moves it can make, and how you can lead it to a more successful future.
Financial SWOT Analysis Anchored With Data: Drive Business Decisions With Financial Analysis
The final steps of the SWOT analysis process (forecasting, decision-making, and strategizing) depend greatly on the availability of accurate and thorough business data. The availability of this data depends on the data collection and reporting systems within the business.
- Does your business have streamlined and automated bookkeeping and accounting processes in place?
- Does your business have fully integrated applications to help you collect non-financial data throughout your business?
- Is your financial data timely, accurate, and complete?
- Can you design and generate dynamic financial reports with the click of a button?
- Are you able to set goals, track financial metrics, and objectively evaluate your business performance?
- Do you have systems in place to facilitate data-driven decision-making?
If your answers to these questions aren't confidently affirmative, then your business will struggle to benefit from SWOT analysis. Without your business's data, a SWOT analysis will simply be less effective, the same way a wellness visit with your doctor isn't quite as useful without the ability to run lab tests, check your pulse, take your temperature, and measure your blood pressure.
However, you can put your business in a position to benefit and improve through the SWOT analysis process by teaming up with an outsourced bookkeeping and accounting partner. With outsourced accounting, your business can collect the data it needs to improve and generate a positive ROI by investing in its back office.
GrowthForce can work with you to establish and implement a back-office system designed specifically for your business - designed to meet its unique needs, help facilitate the SWOT analysis process, and support progress toward your goals.