Business Value Drivers – Business Operating Systems

Our last article discussed the necessity of a strong next-level management team to build value in your business. In addition to building a strong management team, it is important to build reliable operating systems that can sustain the growth of the business. Therefore, the second value driver is the development and documentation of business operating systems that either generate recurring revenue from an established and growing customer base or create financial efficiencies.

For most businesses, this includes all the core processes that generate revenue or control expenses, such as:

  1. Human resource management
    • Recruiting – selection, hiring and retention
    • Performance management
    • Training and development
    • Compensation and benefits
  2. Production – product or service quality control and improvement.
  3. Product or service research and development.
  4. Inventory and fixed asset control.
  5. Sales, marketing and communications.
  6. Procurement including the selection and maintenance of vendor relationships.

In addition to the business systems related to revenue and expense, some systems are related to customers (such as tracking systems) and the delivery of your products and services (such as distribution systems).
Successful companies also have documented systems and policies for the management of the business, in addition to the business operating systems, these include:
• Financial control systems and accounting policies.
• Policies to ensure compliance with legal and regulatory matters, especially those related to employer/employee relationships and safety.
• Data management and information systems that tie the company together.

The Value of Documented Business Systems and Processes
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 also means that the data surrounding each interaction can be measured, interpreted, and mined. Using that data, next-level management teams continually modify and improve those experiences.

Having documented business operating and financial systems can help your company to grow and scale without significant additional investment or overreliance on any one or group of individuals.

If the time comes that you would like to sell your business, potential buyers want assurance that the business can continue to move forward after new ownership. They want to know that operations will not break down when the former management leaves. This assurance can be obtained when there are documented systems in place that enable the buyer to repeat the actions of the former owner to generate income and grow the business.

The ARGI team is equipped with a team of professionals seasoned in working with business owners to help them increase the value of their business. We would love the opportunity to help you reach your goals. Please contact our team with any questions you may have.

Source: Brown, John. Exit Planning: The Definitive Guide, Business Enterprise Press, 2016.

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