Published February 10, 2009

Analyzing Your Small Business: What About Business Threats?

In our first article in this pairing, we took a look at the importance of taking a step back to analyze the performance of your small business.

We talked about why it can be hard, and the importance of honest analysis. We also outlined a method known as a SWOT analysis which can be a useful tool in the analytical process.

Circumstances Beyond Your Control

While the first three categories of a SWOT analysis (strengths, weaknesses, and opportunities) are pretty straightforward, the fourth (business threats) is not.

All of the first three relate directly to your business and are matters that are within your control, but threats are outside of the elements of your business that you can control.

What does that mean? Well, every business is vulnerable to factors that the owner cannot control. This is most clear right now, in the middle of a recession. Who could have known that easily granted mortgages could lead to the bust that we have been in for the last year?

SWOT to the Rescue

While you may not be able to predict the exact circumstances, a SWOT analysis could have prepared your business better for an economic downturn.

The idea when looking at the SWOT threat section is to put your worst fears, business wise, down on paper. Competition undercutting your prices, higher overheads, and so on can all potentially affect your business's success.

Instead of flailing for a solution if and when these fears come to fruition, planning ahead can mean you create a contingency plan to deal with them well ahead of time.

The Competition

In fact, competition is a major source of many of the threats that you will want to take a look at as far as your business goes. Again, let's stress the fact that you will need to put down everything that you think might become an issue in the future.

A competitor may take a loss in order to bring a cheaper product to consumers, for example. This is something that, on the face of it, you can't do much about. But you are not totally helpless.

Your job will be to analyze the competition's reason for doing so, and then make your own plan as to how to deal with that business threat, should it happen.

Of course, as you write out your contingency plans to deal with your threats, you may start to realize that there are factors that might come up to thwart those as well.

As with any planning and preparation scenario, there will come a time when you have to draw the line and rest comfortably in the plans you have made. For SWOT threat process, we recommend sticking to the original business threats and not worrying any further than that.

There's really nothing you can do about threats to your small business, except be prepared.

Honest analysis and planning ahead can take some of the sting out of the bite should your worst business forecasts start to come true.