How To Compile A SWOT Analysis

SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats - It has a direct impact on business strategy and should always be included in any business plan sample.

What makes it such an indispensable component of any business plan sample lies mostly in its usefulness and simplicity as a planning tool. Not only is it a very useful tool but it is easy to use and to understand.

We are all familiar with drawing up a list of advantages and disadvantages when we are not sure what we should do. In many ways such a list can be described as two-dimensional whereas a SWOT Analysis can be seen as four-dimensional, giving us much more and better information.

A SWOT Analysis has two internal components, namely Strengths and Weaknesses, as well as two external components, namely Opportunities and Threats.

By "internal" we refer to individual or company characteristics - You or your company.

By "external" we refer to influences outside of your or your company's environment that may impact positively (opportunities) or negatively (threats) on you or your company in the future.

Let's consider the four elements one by one:

Strengths - Internal Factors

This is the first SWOT element we should consider. There is no minimum or maximum number of strengths that should be listed. However, keep the strengths relevant to the topic you are evaluating.

Example: If you are considering starting your own home based affiliate business selling computer software there is no need to mention that you are a great gardener. On the other hand, if you are looking into starting your own home based business doing garden and landscape design then you should mention your gardening skills as one of your strengths.

Let's use the example of gardening. You are looking into the possibility of starting your own home based business that will specialize in landscaping gardens. These may be your strengths:

1. Love to work outside in the garden.
2. Strong and in good health - Can work hard for many hours.
3. Have 10 years experience in garden landscaping (as a hobby).
4. Have successfully completed a garden landscaping course.
  
Weaknesses - Internal Factors

Considering and listing weaknesses is our second SWOT element. Many people make the mistake of overstating their strengths and understating their weaknesses when considering a new business venture.

Be very honest with yourself when compiling your SWOT list of weaknesses and even ask close family and friends for their honest opinions. However, avoid asking generally negative people for their opinions. These people will not be sincere in their comments.

Using our garden landscaping example, here is a list of possible weaknesses:

1. Getting older - May not be able to work as hard in the future.
2. Do not have all the right equipment - Will have to invest...
3. Too much work for one person - Will have to get help.
4. Have never done garden landscaping professionally before.

Note that there can be a close correlation between our SWOT strengths and SWOT weaknesses - In our example, you may have experience and qualifications (strengths) but no professional experience. The fact that you only did it as a hobby can be both a strength and a weakness.

There is no right answer. It is up to you whether you list it as a strength, a weakness or both.

Opportunities - External Factors

The third element in our SWOT Analysis is opportunities. Unlike strengths and weaknesses, opportunities is an external factor. Here you consider an opportunity that is currently outside of your personal environment.

At this stage you have not yet taken any action to realize or dismiss the opportunity.

Once again, using our garden landscaping example, here is a list of possible opportunities:

1. Have come across a great garden landscaping franchise.
2. Buy an established business from a neighbor going on retirement.
3. Son indicated he is interested in joining me in the business.

Notice how one weakness, namely too much work for one person is addressed in the opportunity segment by indicating that his son has indicated that he is interested in joining his father in business.

Threats - External Factors

The last SWOT element we need to consider is threats. As with weaknesses, it is important to be as open and honest as possible about potential threats. It is certainly recommended that you get outside opinion on possible threats and do some research yourself.

Returning to our garden landscaping example. Some possible threats may include:

1. Strong competition.
2. Late payments will create cash flow problems.

Once you are finished with your SWOT Analysis, read through it at least five times. Based on some of your answers you may decide to add some new factors to consider in one or more segments. On the other hand, you may also decide to delete or amend some factors. Use it as a working document.

It is often not that easy for many people to draw up a business strategy. By using the results of your SWOT Analysis you are starting of in the right direction. Use it as a starting point in setting up your business strategy.