As part of year-end planning, business managers and auditors often assess a company’s unique risk factors. A “SWOT” analysis is a great tool to facilitate a detailed review of the organization’s strengths, weaknesses, opportunities and threats. By taking an honest look at these elements, you can understand how to capitalize on available opportunities and strengths and mitigate threats and weaknesses.
SWOT analysis starts by identifying strengths and weaknesses from the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies or competitive advantages. Examples might include a strong brand image, a loyal customer base or exceptional customer service.
It’s important to unearth the source of each strength. When strengths are largely tied to people, rather than the business itself, consider what might happen if a key person suddenly left the business. To offset key person risks, consider:
- Purchasing life insurance policies on key people
- Initiating noncompete or buy-sell agreements
- Implementing a formal succession plan designed to transition management to the next generation
Weaknesses represent potential risks and should be minimized or eliminated. They might include high employee turnover, weak internal controls, unreliable quality or a location with poor accessibility. Often weaknesses are evaluated relative to the company’s competitors.
The next part of a SWOT analysis looks externally at what’s happening in the industry, economy and regulatory environment. Opportunities are favorable external conditions that could increase revenues and value if the company acts on them before its competitors do.
Threats are unfavorable conditions that might prevent your company from achieving its goals. Threats might come from the economy, technological changes, competition and increased regulation. The idea is to watch for and minimize existing and potential threats.
A SWOT analysis provides a logical framework for understanding how a business runs and what outside forces could impact cash flow in a positive or negative manner. If you want help putting your risk framework together or using a SWOT analysis to evaluate 2017 financial results and plan for your company’s future, JLK Rosenberger can help. For more information, call us at 972-931-6803 or click here to contact us.