Personal Finance

Why firms should go back to the drawing board in fourth quarter

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The fourth quarter presents an opportunity for businesses to review performance during the year. PHOTO | FILE

We are in the last quarter of 2016. Many organisations are looking into their plans for the year to analyse what they achieved and others are wisely training sights on 2017.

One of the main elements of a strategic plan is a legal SWOT test, which is an evaluation of the strengths, weaknesses, opportunities and threats existing in the legal environment.

The importance of such an analysis would be for the firm to take advantage of the favourable conditions to enable it meet its goals while avoiding the unfavourable conditions as much as possible.

When analysing the opportunities that a firm has in the legal environment a few factors need to be taken into account.

First is the new laws or government policies that are favourable to the business. If there are any, then the firm must plan its strategy in such a way as to take full advantage of them.

A new legislation in the firm’s sector would be welcome as it would guide players to take full advantage of the changes. It is important for a firm to acquaint itself with any potential law that would affect its operations.

Are there any new Bills that have been drafted? Is there any new government policy in the pipeline that might favour the company’s strategy?

A regional business has to consider the opportunities presented by each host country, when making its strategic plan.

Sometimes it might be forced to shift to a different country simply because the chosen country’s legal environment is more favourable.

A firm must also look at the threats in the legal environment when making its strategic plan. One of the threats, which is sometimes ignored, is the introduction of new laws that might be unfavourable or could impact greatly on operations.

Sometimes a new law could make a firm reconsider doing business in the host country. Similarly, repealing a favourable law would impact a business’s operations. This affects the firm’s strategy and operations.

The firm’s internal strengths legally, should also be analysed and upheld. Some examples of strengths would be the existence of a legal and compliance department or a legal officer.

The very fact that there exists qualified personnel handling the firm’s compliance issues gives the firm a better image to its stakeholders, which include the government.

The firm’s weaknesses legally should also be analysed and efforts made to address them, for example, any pending law suits.

The business needs to take a thorough and honest analysis of its weaknesses and formulate ways to reduce them.

Exposure to legal risk or potential legal threat is another weakness the firm must analyse and address. For example, if a lender has granted unsecured loans then this poses a risk to the firm in the event of default by the borrowers.

If the firm has entered into verbal arrangements with third parties it enhances its legal risks. It could consider formalising any existing pacts with third parties to reduce its legal risk.

The last quarter of any year is the time most businesses do a performance analysis and also plan for the coming year. It is prudent to do a performance review of the current year and plan for the New Year too.

Ms Mputhia is the founder of C Mputhia Advocates. Email: [email protected]