Standard Operating Procedures (SOP)
Definition - What does Standard Operating Procedures (SOP) mean?
Standard operating procedures (SOPs) are the documented processes that a company has in place to ensure services and/or products are delivered consistently every time. When a company is growing, it is often highly dependent on the owner for all major decisions. As the company reaches a certain size, this form of decision making can limit its capacity to grow further since the owner cannot possibly make all decisions properly. Additional management and documented SOPs are required to allow the company to continue growing, and also establish a succession plan and train the growing employee base.
Divestopedia explains Standard Operating Procedures (SOP)
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:
- 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, safety 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; and
- Information technology - provides a detailed account of all IT protocols including password setting, backups and disaster recovery plans.
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