Year-End SWOT Analysis Can Uncover Risks

KPM A&A Update link to blog.

04 Dec Year-End SWOT Analysis Can Uncover Risks

As your company plans for the coming year, management should assess your strengths, weaknesses, opportunities, and threats (SWOT). A SWOT analysis identifies what you are doing right (and wrong) and what outside forces could impact performance in a positive (or negative) manner. A current assessment may be particularly insightful because market conditions have changed significantly during the year — and some changes may be permanent.

Inventorying Strengths & Weaknesses

Start your analysis by identifying internal strengths and weaknesses, keeping in mind the customer’s perspective. Strengths represent potential areas for boosting revenues and building value, including core competencies and competitive advantages. Examples might include a strong brand or an exceptional sales team.

It also is important to determine 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 agreements, and implementing a formal succession plan.

Alternatively, weaknesses represent potential risks and should be reduced or eliminated. They might include low employee morale, weak internal controls, unreliable quality, or a location with poor accessibility. Often weaknesses are evaluated relative to the company’s competitors.

Anticipating Opportunities & Threats

The next part of a SWOT analysis looks externally at what is 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. They might come from the economy, technological changes, competition, and government regulations, including COVID-19-related operating restrictions. The idea is to watch for and minimize existing and potential threats.

Think Like an Auditor

During a financial statement audit, your accountant conducts a risk assessment. That assessment can provide a meaningful starting point for your SWOT analysis. Contact us for more information.