Lupberger: Document Your Operating Systems
authors David Lupberger | August 10, 2020
True transferable value in a remodeling business is determined not by how well you run the business, but by how well your business runs without you. Whether or not you intend to sell your business, effective value drivers increase company value if they contribute to cash flow both during and after an original owner’s departure.
Determining how to increase transferable value is the business owner’s job. However, once owners and their advisors determine which of the appropriate value drivers must be strengthened, everyone in the company should be involved. By definition, business owners cannot do it alone. If they could, they would not be creating transferable value, because once they departed, the value drivers would disappear.
If you wonder whether installing systems in these (and all) areas of your company is worth your time or effort, let us look at systems from the perspective of a potential buyer. If a buyer compares your company to another, which company will he or she pay more for?
Your Company which is run by an owner who:
- Has creatively and effectively built the business with intuition and intelligence; and
- Will be gone once the buyer takes the reins.
Another company which relies on systems that:
- Are written and communicated clearly
- Are adhered to by all employees
- Produce consistent results
- Will be in place long after the owner leaves.
In the context of transferable value, operating systems are the established and documented standard business procedures that demonstrate to potential buyers that a business can maintain its profitability after an owner leaves it in the buyer’s hands.
The Value of Documented Operating Systems
The theme of Michael Gerber’s best-selling business book for entrepreneurs, The E-Myth Revisited, is, “Let systems run the business and people run the systems. People come and go but the systems remain constant.” This advice is as true for smaller businesses as it is for larger enterprises.
Having great processes means customers, vendors, and employees enjoy the same experience each time they interact with a company. It means that data surrounding interactions can be measured, interpreted, and mined. Next-level management teams continually modify and improve those experiences.
If your objective is to sell your company at some point, here are a few quick definitions:
- Systems refer to a group of related processes.
- Processes have purposes and functions of their own and are components of a system. A process alone cannot do the work of a system.
- Procedures are the approved way to do things and often include a sequence of steps.
- Steps are the actions we take to get something done.
A solid management team is key. In addition, reliable operating systems can sustain the growth of a business. Documentation of business systems should generate recurring revenue from an established and growing customer base or create financial efficiencies.
Would you buy your business?
If you leave shortly after a sale, what remains? If the answer is top managers and efficient business systems, you can be more confident that you will have a legacy and get full value for your business.
Documented systems, processes and procedures ensure quality and consistency after a sale. They signal to a buyer that critical elements of a successful transition are in place. Items worthy of documentation include:
- Financial-control and accounting policies.
- Legal and regulatory compliance matters, especially those related to employer/employee relationships and safety.
- Data and information systems that tie a company together.
Again, put yourself in the shoes of a buyer. They want assurance your business will continue to move forward under new ownership and that operations will not break down. This assurance can be obtained with documented systems to repeat the actions of the former owner to generate income and grow the business.
There are several key business systems.
- Marketing practices with metrics that can be measured
- Customer qualifying processes
- A sales process that guides potential clients through a positive sales experience
- Sales-to-production handoff processes
- Production management systems that update daily, to ensure customer experience consistency
- A documented close-out and warranty process
- Processes on converting every past client into a client for life
If you would like assistance with generating documented company operating systems, contact me, I can share 21 construction-specific job descriptions that will facilitate this process for you. David@RemodelForce.com. QR