This is the third in a series of blogs on the information required for a thorough due diligence before going into a substantial business deal. Today I’ll have a look at the SWOT Analysis.
SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats and it is a technique for investigating the internal and external factors that might affect a business currently and what one might focus on in the future. According to Wikipedia it is credited to Albert Humphrey.
Though this information is generally “high level” (and thus more likely to be shared early during a negotiation) it should be remembered that often there is a fair bit of formal and informal analysis behind it. When describing their companies’ Strengths, business owners may tend to romanticise their businesses exploits while they might downplay or even ignore their Weaknesses. Often having blinkers or rose-coloured glasses on are the biggest weaknesses. Business owners tend to have a feel for their business and how it’s going and this should shine through when doing a SWOT analysis.
It’s important to understand the context in which the SWOT analysis was done. If a business owner is in the process of selling the business or looking for investors, the Strengths and Opportunities will be put in the spotlight. If the SWOT analysis is done to analyse a running business it is more likely to focus on Weaknesses and Threats (i.e. where the business can be improved).
In the next blog I’ll consider what that can be read out of the Human Resource information for a business.