What Does Standard Operating Procedures (SOP) Mean?

Divestopedia Explains Standard Operating Procedures

Standard operating procedures can increase the value of a company. It shows a buyer that the company is “process driven” rather than “founder driven.” When a company has well-documented SOPs, it should include them as part of its sales pitch to try and generate a valuation premium.

Some of the key SOPs required in every business would include:

• Safety: provides for the steps that must be taken immediately if there is a serious employee injury and/or natural disaster such as a fire, flood, earthquake, tornado or hurricane. This is generally considered to be one of the most important SOPs that must be implemented before any of the others.

• Strategic management: provides for the steps that senior management must follow to generate the company’s long-term strategy.

• Human resources and payroll management: provides for the steps to qualify, hire, train and fire employees in the organization.

• Operations: provides the steps to handle every aspect of operations including quality control, procurement and overall execution of services.

• Finance and administration: provides the steps to handle all financial transactions as well as reporting of key performance indicators for the company.

• Forecasting and budgeting: provides the steps to follow for completion of the company’s annual and three to five-year forecasts.

• Sales and marketing: provides for a detailed description of all activities used in lead generation, sales presentations and closing.

• Information technology: provides a detailed account of all IT protocols including password setting, backups and disaster recovery plans.

A well-written SOP can reduce the amount of time needed to train new employees. Those who are given a clear set of directions on how to accomplish their assigned tasks will be able to transition more smoothly into their new positions. Once an employee has completed the initial onboarding and training, the SOP can serve as the next point of introduction to the job.

SOPs can also provide companies with at least a measure of continuity. For example, if one superstar employee wears many hats and accomplishes many things for the company on a daily basis, then SOPs can help to train those that must replace him or her if he or she leaves for greener pastures. They can ultimately ensure that crucial tasks can still be completed even after one or more key employees have gone.

SOPs can also provide an important measure of legal protection for a company, and there has never been a time when this has been more critical. If an employee is seriously injured on the job, then a company that has a well-written set of SOPs for the task, service or product in question will be able to stand on much firmer ground than a company that does not have this. Failure to have adequate SOPs in place can lead to disaster for a company facing a lawsuit or out-of-court settlement.