Financial management swot analysis is a new paradigm in finance whereby financial managers are encouraged to simulate on different financial scenarios before applying it to real life situation. It all revolves around finding an optimum financial pressure that a business can bear. This is similar to the financial stress test that banks periodically undergo.
WHAT IS SWOT ANALYSIS?
Swot analysis is a simple, yet complex process of weighing your options in the light of realities; it does not give room for bias of any kind. An unbiased stance is taken when looking at; strengths of an entity, weaknesses of the entity, opportunities facing an entity and threats waiting to swallow those opportunities.
In order to engage in a successful financial management swot analysis, managements and financial analysts must review the skills, knowledge base, experiences, expertise, and achievements of the financial services team in the light of internal strengths and weaknesses while paying close attention to the external opportunities and threats.
USEFULNESS OF SWOT ANALYSIS IN FINANCIAL MANAGEMENT
It is only fools that goes to war without taking inventory of their army and match it with the strength of the enemies. Warlords take out time to draw up a war strategic map that will be drawn up after taking into account the strengths and weaknesses of their enemies in the light of opportunities and threats that can easily be exploited.
Financial management swot is most useful to a company in terms of planning. Planning in this case includes both long term and short-term planning. Through financial swot analysis, a company identifies the financial facts and figures that signal danger and work to ameliorate its effects. This new finance paradigm which I call financial management swot analysis is what the world economy needs in this highly unstable economic time.
STEPS INVOLVED IN FINANCIAL MANAGEMENT SWOT ANALYSIS
SAY THE BITTER TRUTH:
True financial swot analysis starts from the time when someone tells him or herself the truth. I was mad at one of my distant client the other day when he tried to hide his financial position from me during one of our telephone ‘finance-siac marathon’. Do not bother asking me what that term means, its for my personal use only. He refused to tell himself the bitter truth that his financial condition is in mess.
A person, company or a nation that fails to say the truth about her financial position is already doomed to fail. Self told truth is the main foundation upon which all other financial management and financial planning activities are built upon. Enron for instance failed to tell herself the truth about her financial position and the result was catastrophic.
A simple way of telling the truth about financial management is to be realistic about what your (individuals, companies and governments) income will be in a given period. In as much as it is good to estimate, overestimation is the key to financial failures that we all have been experiencing.
LISTEN TO THE BITTER TRUTH:
One thing that whistle blowers of major financial crisis have pointed out is the fact that no one cares to listen to the truth even when it is glaring. The bitter truth of financial planning even when told is often ignored by stakeholders. Sometimes an entity might not be aware of a worrying condition of its finances and needed to be told by an outsider. When this happens, the problem of not listening to what is said becomes the next problem.
ACT UPON THE BITTER TRUTH:
Information no matter how relevant and useful ceases to be useful when not acted upon. Saying the truth about your financial position and even listening to the said truth will amount to nothing if not acted upon. Information is nothing but a mere data if not utilised. Action is very fundamental in the process of financial planning.
The above three simple steps which the acronym SLA (Say, Listen and Act) represents is the key to financial freedom at all levels. Financial management swot analysis cannot be isolated from other areas of finance and accounting. It takes an integrated learning and practice to achieve. I urge you today to become that efficient financial manager that you have been dreaming of.