The What, Then The How

Business Processes and Standard Operating Procedures (SOPs) are two important concepts in the field of business management. While they are often used interchangeably, they are distinct from one another and serve different purposes. Understanding the differences between business processes and operating procedures is essential for effectively managing and scaling a business.

Business processes refer to the organized sequence of activities and tasks required to deliver a product, provide a service, or achieve a specific business outcome. These processes encompass the inputs (resources, materials, information), the transformation activities (tasks, operations, decisions), and the outputs (products, services, deliverables) that define the value chain of a business.

Business processes are typically:

• High-level and cross-functional - often spanning multiple departments or teams,

• Focused on the WHAT - the strategic goals or outcomes the business is trying to achieve,

• Designed to be adaptable - able to evolve with changing customer needs, market conditions, or business strategies.

When preparing a business for a growth phase or an exit, it is critically important that an owner or buyer assesses the reliability, transferability, and scalability of the business itself. Well-documented and optimized business processes deliver critical value in several ways:

1. Demonstrating Scalability and Repeatability

A company that relies on informal practices, "tribal knowledge," or owner-specific expertise is difficult to scale and appears risky. In contrast, a business with clear, defined processes provides the necessary foundation for growth, allowing potential buyers to better evaluate whether it can expand without sacrificing efficiency, quality, or customer satisfaction.

2. Reducing Owner Dependence

One of the greatest growth inhibitors and ultimate value killers in business is owner dependency. Documented processes shift operational knowledge from the owner's head into the business infrastructure, creating a self-sustaining operation that can thrive under new leadership.

3. Increasing Operational Efficiency

Well-designed processes streamline workflows, eliminate waste, reduce errors, and speed up cycle times. Higher operational efficiency translates directly into stronger EBITDA (earnings before interest, taxes, depreciation, and amortization), providing the fuel for growth and driving higher valuation multiples in the marketplace.

4. Enhancing Transferability and Risk Mitigation

Growth requires scalability. Buyers want businesses they can integrate, operate, and grow with minimal disruption. Documented processes make integration smoother, reduce friction during a growth or scaling phase, and ultimately lower transition risks — all of which increase buyer confidence and improve negotiation leverage for the seller.

5. Strengthening Strategic Alignment

Effective business processes are tied directly to strategic goals. They ensure that all departments and teams are aligned with the company's value drivers, meaning that day-to-day activities contribute meaningfully to growth, profitability, and customer satisfaction — all key factors that influence sale value.

Standard Operating Procedures (SOPs), on the other hand, are more specific and detail the exact steps that need to be taken to complete a task or process. SOPs are written documents that outline the detailed procedures for completing a specific task or process consistently and efficiently. Operating procedures are used to support business processes and provide clear, actionable guidelines for employees to follow.

Some key reasons for creating and implementing SOPs are that they:

• Standardize operations to ensure profitability, quality, and efficiency - “to do things right every time,”

• Provide a consistent experience for customers,

• Create scalability in operations,

• Ensure compliance with any required standards or codes,

• Train new and existing employees,

• Limit the risk of knowledge loss,

• Minimize time spent problem-solving,

• Build a company that is worth more to a future buyer,

• Potentially avoid or minimize an earn-out when exiting the business.

Why SOPs Matter

SOPs are an integral part of any successful, scalable, and salable business. These detailed, written instructions outline the specific steps required to complete an activity, process, or task consistently and efficiently.

Some of the key benefits of having SOPs include:

1. Promoting/Assure Consistency

Without SOPs, each employee may have their own way of doing things, which can lead to confusion and inconsistency. This is especially problematic in industries where precision and accuracy are critical, such as manufacturing or healthcare. SOPs ensure that employees work towards the same goal in the same way, which also reassures potential buyers that the company delivers a consistent product or service.

2. Improving Product or Service Quality

By outlining steps that ensure tasks are completed consistently and efficiently, SOPs help maintain high-quality standards — especially crucial in industries like food and beverage, healthcare, nuclear energy, or aviation safety.

3. Enhancing Efficiency

By identifying the most efficient way to complete tasks, SOPs eliminate unnecessary steps and streamline workflows. This saves time, reduces costs, and boosts productivity. For example, a well-crafted SOP for handling customer complaints enables faster issue resolution and greater customer satisfaction.

4. Enabling Scalability

Well-documented SOPs make it easier to train and mentor new employees effectively. As a result, businesses can hire, scale, and expand operations more quickly to meet growing demand without sacrificing quality, safety, or efficiency.

5. Promoting Workplace Safety

In industries where safety is paramount, SOPs provide a step-by-step guide to completing tasks safely, reducing the risk of accidents and injuries. This protects both employees and the business, reinforcing reliability for buyers and insurers alike.

SOPs are essential for building a strong, scalable, and sale-ready company. They drive consistency, efficiency, quality, safety, and operational scalability — all of which are critical to enhancing business value and future salability. It is critically important for businesses to establish and regularly review their SOPs to ensure they remain up-to-date and effective.

By investing in strong SOPs and business processes, companies can achieve greater operational success and secure a more profitable, lower-risk exit when the time comes.

Business owners must understand that there is an important distinction between business processes and standard operating procedures (SOPs) and this article highlights their critical role in support of a growth initiative, a strategic shift or a business exit.

Business processes define the strategic "what" - the high-level activities required to achieve business outcomes - while SOPs define the "how" - the detailed steps necessary to complete individual tasks consistently and efficiently. Strong, well-documented business processes provide scalability, reduce owner dependence, increase operational efficiency, make a business scalable and more transferable, as well as attractive to buyers.

Complementing this, effective SOPs ensure operational consistency, improve quality, enhance workplace safety, and create the ability to scale quickly and effectively. Together, business processes and SOPs form the operational backbone of a scalable, salable business. They are essential tools for any owner who wants to maximize business value, scale, improve sale readiness, and secure a smoother, more profitable transition out of the business.

SOPS - The What and the How.pdf

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