Business plans don’t end with the final word being penned. They require constant re-assessment and tweaking. Never ignore the value of a regular SWOT analysis.
The importance of small companies business doing their SWOT analysis – examining the Strengths, Weaknesses, Opportunities and Threats facing their business – cannot be overstated, says PricewaterhouseCoopers (PwC) Brisbane-based partner Jason Daniels.
Daniels, who specialises in advising small businesses, says: “This is one acronym that all small businesses should never forget. It’s critical to their whole planning process. It’s a great indicator of where the business is currently positioned, and provides a great base for setting the strategy for the future.”
He recommends that SWOT analysis, which should involve owners, directors and senior management, be undertaken annually to ensure the company is on the right track. “It’s so easy for businesses to lose sight of the main game. You put a strategy in place, a growing bottom line tells you it is working, and so you don’t question it.
“But, as I tell my clients regularly, this is exactly the time when you should question it. In today’s business environment, market conditions change so quickly, whether it be at the macro level – interest rates, the availability of credit, labour shortages – or the micro level, such as a new competitor or product coming into the market,” he says.
Daniels says businesses should never stop scouring the market for opportunities – the O in SWOT. He says: “Depending on your type of business, you should look for new market opportunities and then realistically assess how you can capitalise on them.
“For example, what resources are you going to need to support a new marketing strategy? Will you have to employ more salespeople? Will you need extra manufacturing capacity? Extra warehousing capacity? Most importantly, have you sat down and worked out the implications for working capital.
“I’ve seen some great business plans developed where everything was in place for the business to treble in size in just three years. “But nobody bothered to consider the extra $300,000 in working capital needed.
You have to ask how you will fund it. Will it be equity? Debt? Cash flow? Perhaps a combination of all these options?”
Daniels cites a medium-sized manufacturing company based in the central Queensland city of Mackay as an excellent example of how SWOT analysis can really benefit a business.
He says: “A few months ago I was asked to advise this company where the father had decided to pull up stumps and hand over to the younger generation.
“He had grown the business from nothing over the past 35 years. Deals with clients around Central Queensland were done on a handshake. It’s fair to say an abacus was a complicated financial tool to him; he basically ran the business in his head.
“And it worked. It’s turning over $25 million, is profitable and employing about 120 people. It’s a great business.”
But, as Daniels explains, the business was not as sound as the father believed – and he was made aware of this from a SWOT analysis done by senior management, directors and owners.
He says: “When the company called me in I suggested we have a SWOT session first. In half a day it’s amazing what came out of the woodwork. Capital equipment worth $3 million was identified as being superfluous to needs. That was a weakness.
“They have five products coming out of the factory. Two of these products were not achieving acceptable margins in the face of growing overseas and domestic competition another weakness. A plan was put in place to exit those lines over time to concentrate on more profitable areas of the business.
“One of their major domestic competitors was feeling the pinch. They grew too quickly and the market gossip – in small business, never forget how quickly market gossip gets around – had them in trouble. The company I advise is now discounting the line to put the pressure on and, in all likelihood, has a chance of either picking up the business or snaring a serious number of their customers. That’s recognising opportunity and devising a strategy to exploit it.”
Daniels says the best part of the SWOT analysis was how all parties took ownership of it. “Dad was rightly proud of what he had built over 35 years but finally, through the SWOT process, recognised the need for change.
“Other members of the family who have shares in the company but don’t have day-to-day responsibility got a sense that businesses aren’t necessarily profitable. Long-term planning is critical to the future.
“But most importantly, senior management, feeling somewhat frustrated with where the business was going, and felt they didn’t have the authority to challenge the father, got the opportunity to express an opinion.
“What it’s done is build a partnership between experienced management and the next generation that’s coming in to run the business. I predict exciting times lie ahead for this company,” says Daniels.