The SWOT analysis is usually one of the easier sections of the business plan to write. In most cases, a SWOT analysis is drafted in a bullet point format. Specific issues regarding strengths, weaknesses, opportunities, and threats are showcased in four different sections. As it relates to the strengths section, most entrepreneurs focus on the fact that their business offers a unique product or service that is highly competitive in the marketplace. One of the common strengths for a new businesses is that they are able to effectively undercut their competition in regards to price. This is true especially for service-based businesses that are looking to expand their visibility at the onset of operations by offering substantial deals on the services that they render.
For product focused companies, this is a little more difficult given that they do not have the same buying power as large established corporations. One of the other things that is often included in the strength section of the SWOT analysis it is a discussion regarding the experience of the individual entrepreneur or management team. If you or your management team has had significant experience in the industry as well as an established track record of successes with the development of new entrepreneurial ventures then this should be very much highlighted within this section of the analysis. One of the other things that many entrepreneurs will discuss within this section is whether or not their business generates recurring streams of revenue from service. For instance, if your business is an online subscription focused website that you may want to point out the fact that your company will generate income month after month as credit cards or build. This can be one of the primary strengths as it relates to growing the business since these funds can be reinvested. As it relates to specific industries, certain buyers are able to acquire inventories at rates that are lower than that of the general market. As such, if a business has access to distributors that can provide them with their products at a highly competitive rate then this cost savings can be passed on to a customer. These are all examples of how strengths are showcased within a SWOT analysis.
The next section of the analysis is weaknesses. Although many entrepreneurs don’t want to think about their business having weaknesses or issues this is simply not the case. Every business is going to have specific issues that they need to deal with either on a one-time basis or on an ongoing basis. As such, it is important for the entrepreneur to sit down and really think about some of the critical issues and problems that the business or the industry as a whole will have forward. Certain weaknesses include the fact that some businesses are highly sensitive to changes in the economy. For instance, a luxury goods retailer may see a significant decline in the revenues in the event that there is an economic recession. Other examples of weaknesses include medical businesses that may face significant liabilities as it relates to mistakes that are being made. Finally, one of the primary weaknesses in his face by most businesses is that they are our substantial underlying operating costs. For example, a large-scale retailer is going to need to have a substantial space that will have a very high rental expense as well as a number of employees that are expensive on a per hour basis. These can be an example of a weakness for a retailing business.
For the opportunity section, this primarily discusses how the business will expand over a three-year period. Examples of this include the establishment of additional locations, continued expansion of the company’s marketing campaigns, acquisition of third-party companies, and acquiring additional rounds of capital in order to further expand the business. As each business has unique ways that they can grow – it is important for the entrepreneur to think of ways that they can expand the business once they reach profitability. This is especially true in service-based businesses that deal in billable hours. An example of an opportunity for a law firm, which is a service-based business, would be to hire associate that can increase the billable hours on an ongoing basis. Examples like this should be shown within the SWOT analysis.
The final section of the analysis is the threat section. Many people often confuse this with the weaknesses section given that this is again one of the issues that most entrepreneurs don’t want think about given that it can from their livelihoods. However, it is important to assess whether or not specific threats could have a very damaging or deleterious effect on an individual company’s ability to generate revenues. An example of a threat would be a regulation change that could substantially impact the way the company does business. For instance, a lender could face a change in banking regulations that forces them to maintain interest rates at a certain level. This type of threat is external to the company’s operations but it still can have a negative impact on the profit and loss statement. While it is difficult to imagine every different scenario that could occur that could impact the company’s operations – it is important for the entrepreneur to try their best as it relates to viewing certain external risks that could impact their profitability. This is one of the sections that many experienced entrepreneurs will take a tremendous amount of time to develop given that they want to understand all the potential underlying risk that they may face as they develop their business and their respective operations.