Company Operating Policies and Procedures
One of the easiest ways to make your organization more efficient is having clear, centralized documents outlining the operations of your business. This resource discusses how a standard operating procedures manual and an operating agreement can unify your business’ values and standards in day to day operations. Although fundamentally different, both documents are important to streamlining an organization.
What is a standard operating procedure?
A standard operating procedures manual provides instructions on how to complete day-to-day business activities. A procedure manual is essential for your business to ensure consistency and quality in your products and services. Every business from a small entrepreneur to a large corporation should have a procedures manual. A procedure manual provides written solutions to common business problems to ensure they have the same response each time. A standard operating procedures manual doesn’t have to be long or complex; having even a simple procedure manual for your business allows your employees to have a better understanding of how to complete tasks. Overtime, more procedures will be added and edited as your business grows.
Why is a standard operating procedures manual important?
A SOP, or standard operating procedure, is important because it allows your staff to be as consistent and uniform as possible. It also helps new employees who are unfamiliar with the normal business procedures know how to approach a problem. Even if an employee is gone for vacation, there needs to be written instructions for how to perform certain tasks to keep the business running while the employee is gone. A manual should have procedures that outline the most efficient way to do an operation. A standard operating procedures manual is also more reliable than word of mouth. A SOP should help your employees work smarter, not harder.
A common layout of a SOP contains the following sections:
- Purpose
- References
- Materials
- Procedure
- Forms and Documentation
Each SOP should follow this same layout and have cross referencing when important.
When writing a SOP you should understand the difference between a policy and a procedure. A policy is a guideline that controls the behavior of people and activities of the organization. It states the position of the organization on an important issue. A procedure is the steps required to carry out a policy. For example, a company can have a policy to have the “best customer service in the industry.” This policy is important, but even more important is the procedures required to ensure that this policy is followed. Procedures would then outline how to respond to customer requests in a timely manner and how to deal with customer complaints. Therefore policy and procedures would work together to help a business stay consistent with its core values.
How do you create a standard operating procedures manual?
A standard operating procedures manual is usually around 100 pages and stored in a three ring binder. However, the layout and format varies by industry and business. A good procedures manual should have a table of contents so employees can quickly reference a policy or procedure. Furthermore, each procedure should be worked through to ensure that the steps are clear and understandable.
A good SOP should be:
- Clear and Concise
- Complete
- Consistent
- Controlled
- Current
Clear and Concise: SOPs should be written in plain language with any highly technical jargon avoided or clearly defined. Even if you are in a highly specialized field, SOPs should be clearly understood by new employees or people with limited knowledge of the industry. Concise SOPs should have steps with short, descriptive sentences and pictures and diagrams to visually illustrate a procedure. Cross referencing also reduces redundancy and helps employees find information faster. A good tip is to include a check list for complex procedures for staff to reference as they work.
Complete: There is nothing more frustrating than not understanding how to do something because the directions are missing key information. To help your employees work more efficiently, it is vital that you ensure all steps are listed in the procedure. Even if it seems common sense to you, new employees may not know that a certain step is assumed. All procedures should be written in chronological order with clear beginning and end points so an employee can easily follow along. It is also good practice to include common troubleshooting where applicable, as well as people to contact if the employee cannot fix the problem on their own.
Consistent: In a standard operating procedures manual the format, font, and tone should remain consistent throughout the document. The most important part of the manual is the layout. Having a clear organization and development is vital to helping your employees look up information efficiently.
Controlled: It is good practice to limit the ownership of the standard operating procedures manual to a small group eliminating the chance of having contradicting procedures or information. It is also important to make the procedure manual easily accessible in the work space. You may have a really good manual but if it’s not accessible, it is useless. For this reason, many businesses are turning to electronic systems so employee can access SOPs anywhere.
Current: As with any business manual, the procedures will have to be edited and revised over time. For example, if your business purchases new machinery, your operating manual will have to reflect the new procedures required to run the machine. The work required to maintain a procedure manual is well worth your time. If you can clarify and update your SOPs employees will have fewer questions and be able to work efficiently. Because of the fluid nature of business operations over time, most standard operating procedures manual have an expiration date when a new manual must be updated to provide the most accurate information available.
Forms and Documentation: It is important to include any forms or documentation that must be completed with a certain procedure. Some manuals even have a mock form filled out so employees will have a model to follow. A good tip is to number each SOP for easy reference. For example, a worksheet can list the procedure it corresponds with in case employees have questions or need additional information.
Problems with standard operating procedures manuals
A standard operating procedures manual cannot account for every business activity. Therefore, deviations from SOP can happen on a regular basis. It is good practice to foresee possible deviations and account for this in the procedure manual. Employees who will be referencing the manual the most should have a part in creating SOPs. As qualified professionals, these employees are the most familiar with the business practices and understand how a SOP can affect their daily work.
Standard operating procedures manuals are great for business efficiency but can be counterproductive if not properly maintained. As your business grows and changes, there will be better ways of doing things and you will have to revise your SOPs. Look to your lower level employees to make sure your manual stays up to date. Modifying procedures can lead to time or cost savings and a new way of doing things that can keep your business practices current and efficient.
What is an Operating Agreement?
An operating agreement is similar to a standard operating procedures manual because both documents outline the operations of a business. An operating agreement is created for LLCs, or limited liability companies, and structures the business’ financial and functional decisions. Once signed by the members of the LLC, it is an official contract binding them to their written terms. An operating agreement also clarifies verbal agreements to avoid misunderstandings. An operating agreement is usually a longer document between 5-20 pages long.
Included in an operating agreement are:
- Percentage of member’s ownership
- Voting rights and responsibilities
- Powers and duties of members and managers
- Distribution of profits and loses
- Buyout and buy-sell rules (procedures for transferring interest when members chose on in an event of a death)
Since LLCs are flexible in nature, the operating agreement aims to outline the basic function of the business. This document can be used in court to prove that the LLC is different from the individual and not a sole proprietorship. For this reason, it is a good investment to have a qualified professional, such as a lawyer, look at your operating agreement since it is a legally binding document.
Comparison of SOPs and Operating Agreements
The benefits of an operating agreement are parallel to the benefits of a standard operating procedures manual. Both documents aim to streamline a business’ operations and provide a clear outline of the organization. Operating agreements are different from standard operating procedures manual in that they are usually required by the state to protect the business’ limited liability status. Operating agreements are usually confidential and are kept with the core records of your business.
Both the standard operating procedures manual and the operating agreement aim to streamline a business’ internal operations. Every business should have a standard operating procedures manual and an operating agreement even if it is a simplified document. The important thing is to outline the fundamental policies and procedures of the organization so everyone, from business owners to employees, understands how your business should operate.
Articles for Further Reading
For more information, contact the Giersch Group to request a free consultation at our offices in Milwaukee, Brookfield, or Madison Wisconsin.
