SWOT stands for strengths, weaknesses, opportunities and strengths.  SWOT analysis involves identifying the strengths and weaknesses of a business and evaluating the opportunities and threats, which may affect the business.

Strengths are the business features that allow the business to operate effectively than the competitors. The strengths are considered from the point of the business owner as well as the point of customers and clients.  One must be honest and realistic when identifying the strengths.  Weaknesses are areas capable of improvement. Weaknesses are the areas that are capable of improvement. These are areas in which the business has room to improve thus increasing productivity. Both the strengths and weaknesses involve the internal environment.

Opportunities are any interesting areas or trends that the business can take advantage of. This involves examining the business external environment to identify profit and growth opportunities. External areas assessed include, customers, competition, economic conditions, social trends, technology and government regulations. Threats are also part of the external environment. These can include regulations by the government or trade barriers. Substitutes are also part of a threat.

The importance of identifying the four areas when developing a strategic plan is that they help the management identify the external and internal factors that may affect the business in the future. A strategic plan looks to the future. However, it is often difficult to develop a realistic SWOT analysis due to the uncertainty of the business environment. Both the internal and external environments of a business can change anytime and such changes are not predictable. When developing a strategic plan, uncertainties are not factored in. however, the plan is reviewed regularly to incorporate any changes in the business.

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