How to Identify Strengths & Weaknesses in a Business Plan
In a business plan, the discussion of a company's strengths and weaknesses is often included in a section known as SWOT -- strengths, weaknesses, opportunities and threats. Strengths are what the company does particularly well. It could be offering superior products or being particularly efficient in manufacturing. Weaknesses are things that keep the company from achieving the revenue growth or profitability the business owner seeks. Small businesses often find that one of their weaknesses is a lack of financial resources.
One of the first steps in creating a business plan is establishing a long-range vision for the company -- how the owner sees the company growing and becoming more profitable in the future. He creates his own picture of what the company will look like if everything goes as well as planned. This ideal future version of his company will undoubtedly being doing some things much better than the current company is. He evaluates what current weaknesses need to be addressed that are roadblocks to reaching his ideal future.
A small business owner must know his competitors' strengths and weaknesses in addition to those of his own company. Including a side-by-side comparison of these strengths and weaknesses in his business plan gives the owner a good idea of how to build competitive advantage -- he markets to his strengths and tries to avoid competing head-on with competitors where they are strongest or where his company may be weak.
The company's strengths and weaknesses show up in the financial results -- its profit and loss statement. The business owner should produce a financial report that compares actual results to the forecast numbers in the business plan. Each month, or at least each quarter, he should analyze the largest categories of revenues and expenses, and determine the reason for any variances, whether positive or negative. If profits continue to rise because gross margin percentages are increasing, he knows that production efficiency is becoming one of the company's strengths. Continued revenue shortfalls are an indication that the company's marketing strategy is not working; it is a weakness that requires the business owner's immediate attention.
Many industries have trade associations that survey members and publish statistics about how, on average, companies in the industry are performing. If the business owner sees that his own statistics vary significantly from industry averages, such as in gross margin percentage or profit as a percentage of sales, he can get a good idea of his company's relative strengths and weaknesses. If a company spends a much higher percentage on personnel costs than industry averages, the owner could conclude that employee productivity is one of the company's weaknesses. He would devise strategies and tactics to address this issue in the business plan.
A company may have hidden strengths that the owner is unaware of -- things that could be developed into opportunities to increase revenue. A business owner may also be unaware of things that are seen as weaknesses by the company's customers. Employees who come into close contact with customers every day would be aware of those weaknesses. Asking employees for input during the planning process is essential to having an accurate depiction of the company's current position, including its strengths and weaknesses, and that awareness forms the basis of a sound plan for the future.