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SWOT Analysis- To Make Your Business More Profitable

Aug 17, 2007
SWOT Analysis is a well-known method for describing a business or business propositions in terms of those factors that can have the maximum impact. The business owner does this analysis in order to improve the current position of the business. The Strengths and Weaknesses of the business are considered to be the internal aspects of a business, such as the quality of the product or the managerial skills. Whereas the Opportunities and Threats are the external factors, like the development of a completely new market or the arrival of new competitors.

The strengths and weaknesses of a business can be found in the following:

. Management sector: The over dependence of an employee on a manager or an owner is one of the major weaknesses in a business that often leads to the requirement of more managers. This area needs to be worked upon in order to reduce the expense of the organization and to improve the business.

. The work force: The difficulty in finding skilled staff as well as the employee turnover has to be handled efficiently to help a business grow successfully.

. Sales: The strength of sales, how dependent your sales are on external factors, and cyclical sales are some of the factors that affect the business.

. Financial: The factors affecting the financial condition of your business determine its strengths and weaknesses. The major aspects related to finance are the flow of cash, time to collect on invoices, and the ease of obtaining loans.

. Operations: Strengths and weaknesses are also determined by the internal efficiency as well as the speed of manufacture and delivery of goods.

Opportunities and threats are found in the following categories:
. Threats posed by the new rivals in the market: A new entrant in the market, selling a similar product or service, is considered to be one of the greatest threats, as you might not have a patent that could put a brake on new competitors.

. Bargaining power of suppliers: Suppliers can pose a major threat for the business as they might force you to take large deliveries. Many times they are also difficult to find, or the supply may not be available.

. Customer influence: There are some businesses that rely on a handful of customers, which include a lot of late payers. In addition, many customers bargain for lower prices. In such cases, the business tends to either face the threat of loss of customers or of being unprofitable.

. Substitution: People often get bored using a particular brand of product and tend to opt for a change. The market usually has a number of similar products of similar quality. So the major threat is that people might try a product other than yours, and eventually end up substituting your product with it.

You can use two methods to grade these strengths, weaknesses, opportunities or threats, namely, pictorial and numerical.

If you opt for the pictorial way, you need to first create four sectors on a writing pad, putting the titles Strengths, Weaknesses, Opportunities and Threats in each sector, and a large question mark in the center. Now place each of the SWOTs in each sector, with the most problematic factors being farthest away from the question mark, and the better factors closer to it. The closer the display is bunched towards the center of the grid, the better the shape of your business.

However, if you pick the numerical method of assessment, you need to rate each item from 1 to 5 according to how important each is to your business. In this rating, 5 is considered to be the most important. Besides, each factor should also be rated from A to E according to its impact on the business, where E would indicate the highest impact. Then, check how many Es and 5s you end up with. If there are bad factors then you need to change or work on them. And, if there are strengths and opportunities, then it is important to build upon those factors. This would help to boost your business.
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