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Have you ever wondered how to produce your product or service more efficiently?Paul Akers is obsessed with continuous improvement, but he has a great time running FastCap using lean manufacturing principles. He took the time to sit down and explain how an idea to make cabinets look better turned into a company making over $36.5 million per year.It's a pretty awesome story! We'll share his insights with you starting by explaining lean. We'll also discuss how to come up with your first idea, principles of lean manufacturing, and examples of how to eliminate waste in business.Keep reading to improve your business practices.

What is Lean Manufacturing?

Lean manufacturing focuses on two main principles:

• Eliminating Waste or "Muda" in Japanese
• Productivity Improvement.

Lean principles have their roots in the Toyota production system dating back to 1930. Japan lacked the space and resources to build the massive factories you would find in other countries. This led Toyota to develop just-in-time manufacturing.Paul Akers was familiar with the lean manufacturing process from seeing a friend's cabinet shop where they didn't have cabinets made until they had an order. He didn't really fully appreciate it until he had an experience where he couldn't solve a problem at Fast Cap.Paul told us:[su_quote]The bank came to see the shop, and told me, ‘If you need a loan, just let us know—we'll loan you however much you need.[/su_quote][su_quote]But a Japanese lean manufacturing expert told us ‘You're clueless![/su_quote]He was able to reduce a process from 45 minutes down to 5 minutes in about a week, and it really improved the cycle time. After that, I jumped on a plane to Japan to learn what they were doing. Hear the full story here:[su_youtube url="https://www.youtube.com/watch?v=oarLDeAFSj4"]

What is different about the Toyota Production System?

The Toyota Production System is described by Toyota as:A production system based on the philosophy of achieving the complete elimination of all waste in pursuit of the most efficient methods.It has two main approaches to improving a product or service - Just-in-time manufacturing and "jidoka” (loosely translated as automation with a human touch).Keep reading to find out more.

Just-in-time Manufacturing

Toyota applies just-in-time manufacturing by following several basic practices:

• Do not build until needed.
• Once an order is received, send production instructions to the assembly line as quickly as possible.
• The assembly line should be stocked with the exact number of parts to build any vehicle.
• Upon use of the parts, the assembly line should immediately replace them to be prepared for the next order.
• The company should keep a minimal amount of parts on hand to meet production.

Jidoka

Jidoka is a term coined by Toyota that focuses on automating the production process until a defect is detected. As soon as a defect is detected, production stops to eliminate waste. Once the process has been corrected, the manufacturing process is restarted.

What Are the Types of Waste in Lean Manufacturing?

Lean thinking focuses on the elimination of waste. So let's look at what a lean enterprise would consider waste. There are 7 types of waste, but many lean systems also consider an 8th type of waste. The types of waste are:

• Unnecessary transportation
• Excess inventory
• Unnecessary movement of people, equipment, or machinery
• Waiting – either people or idle equipment
• Over-production of a product
• Over-processing or adding unnecessary features to a product
• Defects-part, product, or service doesn't work properly causing increased costs.
• Bonus: Wasted talent

If you can't already tell, most of these should save you money and hopefully increase your profit, but Paul thinks it is important to emphasize:[su_quote]Make it about profit and lose. The real benefits an organization will see when they eliminate waste are happier customers and employees. You'll also be putting out fewer fires because your organization runs more smoothly.[/su_quote]Let's look at each and find out some ways that Paul Aker's team improved them.

Unnecessary Transportation

Unnecessary transportation is focused on moving something from one place to another. This is typically in regards to the supply chain.One of the industries that are notoriously bad about eliminating waste in this area is the airline industry. If you've ever taken a plane from Dallas to Los Angeles to get to Vegas, that's a waste of time and gas as you practically have to fly over Vegas on the way to LA.Find the most effective, least costly solution to go from raw materials to the customer without negatively impacting value. If your supply chain has multiple stops before it gets to you, try to make each step in the production process bring the inputs closer to your location.

Reduce Excess Inventory

Excess inventory is wasteful because it requires more space to store inventory. The inventory referred to here is unprocessed inputs such as wood for a cabinet. Basically, you are only buying the raw materials you need to complete the jobs on hand.

Eliminate Unnecessary Movement

Every movement that is performed should add value to the customer. If it doesn't, it's muda. Paul tells us about several processes Fast Cap has implemented to reduce unnecessary movement, but one that really stood out to me was the use of different color lights.[su_quote]Our forklifts are really big, and they could really hurt someone if they walk into one of the blindspots. We put a red light at the end of each aisle that turns on when the forklift is in that aisle. That helps people know not to go down it.[/su_quote]

Eliminate Wasted Time

Wasted time is one of the key ways to cut waste. As humans with finite life spans, time is one of our most valuable resources. A company cannot achieve the highest levels of success without respecting its resources.Businesses measure wasted time using productivity metrics like Revenue Per Employee. At this point in time, automation is far less than the cost of an employee over 50 years, so businesses should be adopting automation to try to reach the point where employees' primary focus is adding value.Paul gave us an example of wasted time on a project creating custom parts for a customer. It was taking them 3 days to create the parts because the process required a lot of human activity.The process involved a handle that had to be pulled down multiple times per product and a duster to clean the parts as the final step.He told us:[su_quote]By adding a foot pedal that connects to the handle via a bungee cord, we were able to pull the pedal with our feet. Then we were able to find a great place for the duster where we dusted the part as we moved it to the container for shipping. These two changes cut the time to 8 hours.[/su_quote]

Avoid Over-production

This type of waste simply refers to producing more of a product than is needed at the current time. If you need 26,000 Fast Caps to complete the orders for the day, you only want to produce 26,000. Any more than that is waste because it will impact your storage needs.This production process can create tremendous results in terms of productivity and cost savings, but you'll need ways to make sure that orders don't slip through the cracks during the process.Fast Cap uses clipboards for expedited shipping orders. They only take the clipboard once they are ready to produce it. When they are starting to close for the day, they can easily make sure they completed the expedited orders by checking to see if any are missing.

Don't Overprocess

A customer expects a product to serve a specific purpose, and how well it serves its purpose impacts how well the customer will value the product. You want to do the least production necessary to create value for the customer. Anything more than necessary is waste.There are two key ways companies overprocess, including unnecessary steps to accomplish the goal of adding unnecessary features. We'll be talking about reducing steps in much more detail later, but let's look at lean manufacturing examples to prevent unnecessary features.Let's assume Fast Cap gets an order for caps for screws that go in oak cabinets. Providing a variety pack of different color caps would be an example of a wasteful feature. The majority of the caps wouldn't be used while building the cabinets.

Respond when Defects Occur

Defects are anything that reduces the quality of the product. Today, recognizing defects will primarily be done with automation. If a camera detects a scratch on a Fast Cap, the cap should be separated before it is put in with the other caps.If the defect could impact safety, the process should be stopped, and someone should conduct a root cause analysis of the situation. Once the cause is identified and corrected, the production cycle can continue.

Bonus: Don't Waste Talent

In many companies, management thinks they know best, but a lean enterprise realizes that their people know their jobs best. They perform them every day and know where there is room for improvement. Innovation occurs when you empower that talent.Paul told us that the best tool he found to eliminate waste is 3 S-ing. It stands for "sweep, sort, and standardize."[su_quote]Every day when we come in, we start our day by sweeping. This helps us spot things that are out of place and correct them. Each of us spends about 30 minutes doing this. The focus is on eliminating waste and solving problems.[/su_quote]This method empowers everyone to find areas for improvement in Fast Cap's production process. Once someone finds a way to reduce waste in the business, they make it where the processes are easily repeatable by anyone in the company.Lean techniques make it where everyone owns the continuous improvement cycle, making the business a place everyone enjoys being at.

What are the 5 Lean Manufacturing Principles?

The lean manufacturing principles go beyond the Toyota Way to help organizations that provide a product or service. The principles require a true system-wide focus on continuous improvement, but what are the 5 principles of lean manufacturing?

• Define Value
• Identify the Value Stream
• Create the Flow through the Value Stream
• Establish a Pull System
• Continuously Improve the System

Let's look at each of these.

Define Value

The first step to implementing lean thinking is to define value as it applies to your organization. In lean manufacturing, value is typically focused on what adds value to the customer, but different parts of a business have different customers. There are three main types of customers that an organization will have:

• Customers who buy a product or service.
• Regulators who require proof of compliance.
• Stakeholders who want proof that the improvement adds value as measured in profit.

Each of these customers will define value differently.

Customers

Customers pay for a product or service based on their needs and desires. Anything that does not meet their needs is considered waste. It should be eliminated. They care about the product and customer service. Anything else is meaningless to them.Like Paul said,[su_quote]When you go a coffee shop, any steps before you brew the coffee and pour it are waste. They aren't paying you to wash the coffee pot. They are paying for you to make them a pot of coffee.[/su_quote]

Regulators

Regulators are concerned with companies following the rules. The rules are there to protect employees, customers, or investors. Failing to abide by them can result in huge fines, lawsuits, and even halting company operations.The cost of compliance in manufacturing is twice as high as most industries according to the National Association of Manufacturers. Unfortunately, this cost isn't really part of the value stream as defined by the customer.The value here is derived from several hidden costs:

• Cost of workplace injuries and deaths-According to the National Safety Council, workplace injuries cost $171 billion in 2019.
• Cost of product recalls - 4,217 product recalls in the U.S in 2015. According to SmartSense, food recalls can cost $10m/recall. Meanwhile, the Volkswagen recall cost $30 Billion.
• Cost of fines: OSHA can fine a company up to $136,532 per day, per violation.

Spending to avoid these costs through training, documentation, and preventive measures aren't necessarily important to the customer, but they can definitely impact customers through increased costs or loss of service due to company closure.

Stakeholders

Stakeholders are the people who are impacted by your company. They can be employees, stockholders, bondholders, the community you operate in, and more.You want to make them happy because they can assist your enterprise in getting additional resources to fund long-term continuous improvement initiatives and that new major project you are considering.The stakeholders might value removing waste associated with:

• Administration costs
• Sustainability practices
• Reducing debts
• Innovation management

These are initiatives that can help enterprise-level companies to increase value despite flat or reduced demand for products. If newer companies establish lean philosophy and lean methodologies from the start, it can help them grow faster because lower costs are typically associated with increasing margins.Now that you know how to define value, keep reading to learn how to map the value stream.

Value Stream Mapping

The value stream is simply the process the company goes through that adds value. This will be different for companies depending on the products and services they offer.Given lean started with a car company, I figure using manufacturing a vehicle with lean manufacturing principles is a great way to give an example of value stream mapping.As you can see, the steps that add value to a car manufacturer are limited to 7 main steps. Some of the steps will have substeps that should be mapped out as well.Once you have mapped out the value stream for production, you know which steps create waste, and you should remove them to improve your lean manufacturing system. Management may not be completely familiar with the processes, so make sure to include input from key employees.If you'd like to learn more about value stream mapping, LucidChart has a great article that goes more in-depth on the subject of value stream mapping.

Create the Flow through the Value Stream

After you have identified the waste, the next step is to adjust your manufacturing system to provide a continuous flow through production. Implementing lean principles may require:

• Rearranging the manufacturing system
• Investing in new equipment
• Cross-training employees

The purpose of the changes will be to help your lean production to run smoothly. It should be noted that when you cut out steps that create waste, bottlenecks may form.A bottleneck is simply the part of production that limits the throughput of the system. Bottlenecks are perfectly normal, and once you remove one, another bottleneck is likely to occur. Bottlenecks are waste that helps you easily identify where lean manufacturing productivity can improve.

Establish a Pull System

A pull system is one of the key lean manufacturing tools used to remove waste. A pull system is simply using demand to trigger production.Companies that hold large amounts of inventory do not use a flow pull system. They focus on creating supply and expect to sell it. As we have already discussed, this is one of the 7 types of waste that should be eliminated when manufacturing lean.Let's discuss one of the most commonly used tools for implementing a pull system: the kanban board.

Use a Kanban Board to Manage Lean Production

The most common lean management system to operate using the pull method is the kanban board. Lean practices will vary based on the size and revenue of the organization, but a kanban board is a method of adding each order or project to the board and documenting the process through the cycle.The low-cost method of a kanban board can be done on a wall with Post-its like the picture below.Alternatively, you can use lean technology systems like Jira to manage each project with greater detail. Managing each project is simple with Jira, and they offer a free version that can support up to ten users.The photo below is an example of a Kanban board from Jira that I use with one of my clients.Paul told us about two of the processes Fast Cap has in place to make his approach to Kanban boards work for them:"We use clipboards for expedited orders. That helps us know when there's a high priority order we need to search the warehouse for to meet the shorter lead time.""We use color-coded order papers to specify which day the order came in. If there are multiple colors, then we know there's a burden that needs to be addressed, and we adjust our processes."At this point, you know how to take the first steps to adjust your manufacturing to lean production strategies to reduce waste, increase quality, reduce cycle time, and provide world class services, but lean manufacturing doesn't stop there.Keep reading to learn the last step to becoming truly proficient in lean manufacturing.

Continuously Improve the System

Lean Manufacturing is more than just management jargon or a manufacturing strategy to improve productivity. Lean operations are known for their innovation.The lean manufacturing method can be used in all types of businesses to improve productivity, processes, quality, and services.Lean manufacturing is focused on continuous improvement. Management knows that you'll never reach perfection, but it's human nature to want to get better and better as time goes on. When processes are improved, new bottlenecks occur, which create more opportunities to remove more waste.The world needs the management tools that are necessary to run a lean production system. Increasing productivity is one of the key tools companies and governments can use to keep inflation low.The more efficient processes we use, the lower the cycle time, the better quality we can make those products and services.Everyone should take some time to learn about lean manufacturing processes and how to implement them in your organization and project management system. Lean manufacturing will make each project run more smoothly.Here are some references to learn more about lean manufacturing: The Toyota way, six sigma, and other tools for you to implement lean manufacturing in your workplace:

• Toyota Way 2020 Update
• Paul Akers Twitter Account
• Lean Six Sigma Institute - Has information focused on lean manufacturing and other industries ’ approaches to using lean and six sigma to add value to their lean processes.

We hope the advice from Paul Akins has helped you understand the concepts involved in implementing lean manufacturing.Whether your goal is implementing lean manufacturing, improving your quality, improving your processes, or reducing management influence by empowering employees, lean offers tools to help you succeed.Sign up for our newsletter to get more great tips from business owners like Paul!

Business ideas

Why do some companies scale while others grow, burn out, and collapse? Why do some small business owners barely work and make millions, while others become a slave to their business?

Over the last two years, we have gotten inside looks into some amazing businesses, and the owners all share similar insights. Their secret? You need standard operating procedures.

Remarkably, the largest companies in the world make up to $2 million per employee (excluding the energy industry) while solo entrepreneurs make an average of $50k per year. SOPs, or standard operating procedures, are the basis for these gains because they are the stepping stone to automating a business.

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We’ll look at how to implement standard operating procedures to help your company run more smoothly. We’ll also provide SOP templates and examples to get you started. Click on a link below to jump ahead to the part that interests you.

• What are SOPs (Standard Operating Procedures) in Business?
  • Industries That Use Standard Operating Procedures
  • Why are SOPs Important?
• Standard Operating Procedure (SOP) Templates
• 5 Elements of SOPs
• How to Create SOPs
  • Step 1. Identify Pain Points
  • Step 2. Establish Solution
  • Step 3. Implement a Solution
  • Step 4. Write the SOP Document
  • Step 5. Implement the SOP
  • Step 6. Training Employees
  • Step 7. Refine and Update
• What are the three types of SOP format?
• What is a Standard Operating Procedure (SOP) Plan?
• Sample Standard Operating Procedure Checklist
• SOP Frequently Asked Questions

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What Are SOPs (Standard Operating Procedures) in Business?

A standard operating procedure (SOP) defines the step-by-step process to complete a routine task. SOPs are created to help companies:

1. Perform more effectively
2. Maintain quality
3. Maintain consistency
4. Reduce rework
5. Comply with regulations
6. Delegate tasks
7. Grow

Even small businesses and startups benefit from SOPs. For example, entrepreneur Christopher Mondragon told us:

[su_quote]Exceptional customer service will help cleaning companies start making money in days. Two things I do that others don’t is my phone support is available from 7 a.m. -11 p.m., seven days a week. I also have an online system where people can go online, put in their information, and book it without talking to anyone. Customers love it![/su_quote]

These are the kind of SOPs Chris used to grow his cleaning business to $1.5 million in record time. Would you like to achieve more in your business?

Find out how Chris did it below.

[su_youtube url="https://youtu.be/d4Iip7BHXwg"]

Then sign up for our 7-figure cleaning blueprint where we provide all the tools Chris uses to succeed.

If cleaning doesn’t sound like the right business for you, get ready to dig deeper into what makes a good standard operating procedure.

Industries That Use Standard Operating Procedures

Every industry has standard operating procedures. Some industries have more government regulation and therefore more stringent SOP documents. Some of the most regulated industries include:

• Manufacturing
• Transportation
• Health care
• Financial institutions
• Energy production
• Professional services
• Business administration services

In fact, there are over three million regulations governing businesses in the United States.

I can’t imagine running a business that has employees without a clearly defined SOP document. We have dozens of them just to get this blog out to you. We have a keyword research SOP, a blog writing SOP, an editing SOP, a graphic design SOP, a WordPress SOP, not to mention all the accounting, payroll, and other SOP documents that businesses like ours need to follow.

Why Are SOPs Important?

Standard operating procedures are important because they:

1. Reduce training time
2. Increase quality
3. Improve brand loyalty
4. Reduce regulatory penalties
5. Prevent knowledge loss

Standard Operating Procedure (SOP) Templates

Our mission at UpFlip is to provide the best tools to help you succeed in business. That’s why we've created a template for SOP creation and other helpful resources. Check out some of the standard operating procedure documents we’ve created for you:

• Standard Operating Procedure pdf
• Step-by-Step Standard Operating Procedure template word
• Stample Standard Operating Procedure Checklist for Hiring and Onboarding
• Sample SOP Document

5 Elements of SOPs

A standard operating procedure (SOP) should include at a bare minimum:

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1. Purpose
2. Roles and Responsibilities
3. Quality Requirements
4. Procedures
5. References

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If you want a more formal SOP document, you might also want to include a header, scope, appendix, revision history, and signatures.

How to Create SOPs

Creating Standard operating procedures follows a simple process:

1. Identify Pain Points
2. Establish Solution
3. Implement Solution
4. Write the SOP Document
5. Implement SOP
6. Train Employees
7. Refine and Update

Entrepreneur Adam Hill also uses SOPs in his vending machine business. He uses them for standardizing machines, determining his route, and deciding how much to pay for a vending route. Check out our interview with him below.

You can also pre-enroll for our free vending machine training course.

Let’s look at each step in the process so you can start creating your own effective SOPs.

Step 1. Identify Pain Points

Pain points are routine tasks that impact your company on a regular basis. Your pain points may be challenges like:

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• Training new employees to do a specific job
• Complying with industry regulations
• Reducing the time a business process consumes
• Improving quality control
• Reviewing employee performance

[/su_note]

Make sure to identify why these are pain points, how much time or money they consume, and what solutions you could use to solve them. This step will be the basis for the purpose section for your SOP forms when you create them.

Next, we’ll provide an example of a pain point.

SOP Example Pain Point:

We’re going to provide standard operating procedure examples throughout the article.

Given one of the main pain points companies have today is the ability to find employees, I’m going to tackle this concern in many of the SOP examples. You might describe the pain point in one of the following manners:

1. Hiring new employees costs the company $10,000 in lost productivity every time we hire. The goal of this SOP is to improve the company’s retention of employees.
2. Our business is growing so fast that we can’t hire enough employees. We aim to attract more candidates so we can fill positions faster.

Step 2. Establish Solution

Once you’ve identified a problem, you’ll want to identify the solution.

Business processes will vary from company to company, but you want to consider solutions that solve the problem as easily as possible. Using the hiring example, some solutions might include:

• Adopt an SOP to offer current employees up to 5% more pay than competing job offers to reduce turnover.
• Increase employee referral bonuses.
• Increase pay packages for new hires.
• Partner with a staffing agency to offer temp-to-hire positions.
• Run paid ads for job openings.
• Include salaries in job descriptions.
• Remove or reduce educational or experience requirements from job descriptions.
• Do keyword research for job descriptions.

Numerous solutions can be implemented to solve any problem with business processes. Hopefully, you’re starting to get some ideas about what standard operating procedure we’re going to create to solve the problem of not finding enough employees.

Step 3. Implement a Solution

Next, you’ll want to implement the solution to your problem. When you’re in the process of SOP creation, you may not get it right the first time, but make sure to write step-by-step instructions of what you did. This will be the basis for the SOP format.

Many of the suggestions to solve employers’ hiring problems employers centered around the job description, which means you might want to adopt standard operating procedures that work like this:

1. Perform keyword research for job descriptions.
2. Analyze pay for a position on the local level and set your salaries on the high end. (Yes, I know it costs more, but better pay means better candidates and happier employees. If the pay is higher than that of current employees, give your entire team a raise so they don’t get upset.)
3. Write the job description. Make sure to include the keywords and salary information.
4. Reduce or remove educational or experience requirements from existing job descriptions.
5. Share the posting with employees. Remind them about your referral program. Add a perk and ask them to share.
6. Share the posting on job boards. You don’t have to do paid promotion at first, but it might help if you need an employee fast.
7. Contact a staffing agency. Discuss your needs and budget with them.
8. Run paid ads. If the above steps haven’t been successful, paying for preferential treatment in the job listings is worthwhile.

Step 4. Write the SOP Document

Now that you have a process, you’ll want to write the SOP document. You want to make it foolproof. Personally, I like to give the document to someone who has no understanding of the subject and ask them to follow the directions in the standard operating procedure.

Let’s look at how to write SOPs.

How to Write a Standard Operating Procedure

Writing SOPs shouldn’t be difficult. The point is to make them easy to follow. You’ll want to:

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1. Consider your target audience
2. Create a cover page
3. Add a Table of Contents
4. Include the Purpose
5. Include Roles and Responsibilities
6. Include Quality Requirements
7. Write the Standard Operating Procedure (SOP)
8. Provide References
9. Include the Revision History
10. Include Document Authorization

[/su_note]

Consider Your Target Audience

Before you begin developing SOPs, you should identify the relevant employees, their prior knowledge, and the SOP format most likely to communicate the SOPs properly. Do they need technical SOPs, step-by-step instructions, or hierarchical SOPs?

Make sure to write in an active voice and use language employees understand. Once you’ve considered these factors, you can begin writing.

Create a Cover Page

The first page you’ll create is a cover page. It should be obvious what the standard operating procedure is about. The best way to do that is to create a title page with the:

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1. Name of the company
2. Name of the standard operating procedure
3. Unique SOP identification number
4. Most recent revision date

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We'll provide you with an SOP cover page template. Get your copy and more helpful documents in our free SOP template download below.

Add a Table of Contents

If your standard operating procedures don’t fit on a single page, include a table of contents. This is especially true if you have a three-inch-thick notebook with all the standard operating procedures. No one wants to read an entire rule book to find a single policy.

Include the Purpose

The purpose or scope tells people what the SOP is about. You should have already defined this in the previous steps. Now it’s just a matter of communicating what the SOP covers, what it doesn’t cover, and why employees perform the new SOP as directed.

If you provide digital (not printed) standard operating procedures, provide links to other SOPs mentioned in the purpose.

Roles and Responsibilities

You’ll want to define who will implement the standard operating procedure, who will check the procedure, and anyone who may need to be aware of the SOP.

Quality Requirements

Depending on the standard operating procedure, you may have quality control measures in place to make sure you achieve a positive outcome.

For instance, a t-shirt design SOP might specify that an acceptable design is only 1/16” off-center and that the measurements are taken by a machine. You might also want a human to check every 10 pieces to verify there is no equipment failure.

Write the Standard Operating Procedure

SOP writing should be as concise as possible and should include images for a better understanding of the intent. Make sure to give examples of the key steps. Digital SOPs can have videos so people can watch the SOP in action.

Provide References

If there are additional resources that a team member needs to understand, make sure to include them in the resources. This might include customer complaints, organizational knowledge, internal processes, relevant laws, and more.

Include Revision History

As you grow, your standard operating procedure will evolve to be more effective. You’ll want to document changes. This can be helpful for helping employees understand how the SOP format has changed over time and why.

Document Who Authorized The SOP

Large organizations might need authorizations from specific people before they implement standard operating procedures. Make sure to include a space for these.

Step 5. Implement the SOP

At this point, you’ve defined the SOP and written out the documentation, but you still need to implement it. Implementation could mean:

1. Adopting and integrating software into your business
2. Buying new tools or equipment (This is common in fields that require personal protective equipment.)
3. Training employees

During this stage, your main goal is preparing your business to implement clearly defined SOPs. If your new SOP impacts other SOPs, edit them as well. For instance, new compliance standards would impact both the onboarding process and ongoing employee training SOPs.

Step 6. Training Employees

Creating SOP templates for your employees to work with can help you achieve more with fewer resources, but you’ll need to train your employees on the new SOP to reach maximum efficiency. Common ways of training employees on the company policies include:

• Providing written SOPs upon hire.
• Top employees training new employees.
• Sending an email about policy changes.
• Having a team meeting or training. These can be virtual or in-person, but allowing employees to perform the step-by-step SOP to see it in action normally works best. It helps them see the SOP’s impact on their workflow and provides useful feedback.

Step 7. Refine and Update

No matter how effective SOP writing is, you’ll always find better ways to complete a process as technology changes, your skill sets increase, and your business grows.

After you create standard operating procedures, make sure to go back to them occasionally and make sure that they still adhere to regulatory compliance and best practices.

What Are the Three Types of SOP Format?

A standard operating procedure will normally use one of three SOP formats:

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1. Step-by-step SOP
2. Hierarchical SOP
3. Flow Chart SOP

[/su_note]

Let’s look at each SOP format to understand how to create standard operating procedure documents.

Step-by-Step SOP

A step-by-step SOP shows how to complete a task by completing a series of steps from a sequentially ordered list. How-to guides and recipes are good examples, but there are many other uses as well.

In fact, every blog we write on how to start a business follows a standard operating procedure (SOP) template. We just alter them based on the requirements to start each business.

These SOPs follow the sequence:

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1. Step 1.
2. Step 2.
3. Step 3.

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These are the most common SOPs and are sometimes referred to as step-by-step instructions or workflows. These can be automated in many scenarios to create a quality output faster.

Hierarchical Format SOP

When written instructions would be too complex for employees to follow, you may need to break them down into a hierarchical SOP where the knowledge for one part of the task is covered in one SOP document, and the next part of the process is separate.

For example, hiring employees is a huge task. If you try to include the entire process in one step-by-step guide, it will be overwhelmingly long.

Developing standard operating procedures using the hierarchical format might follow an SOP template that looks like this:

1. SOP: Hiring Employees (SOP1)
   a. Notifying HR of Hiring Needs (link to SOP2)
   i.Submit termination paperwork
   ii.Submit form to create job description
   iii. Other associated tasks (List all)
   b. Researching Hiring Market (Link to SOP3)
   c. Creating Job Descriptions (Link to SOP4)
   d. Sharing Job Descriptions (Link to SOP5)
   e. Interviewing Applicants (Link to SOP6)
   f. Confirming New Hire Job Acceptance (Link to SOP7)
   g. Preparing New Hire Paperwork (Link to SOP8)
   h. Procuring Tools (Link to SOP9)
   I. Granting Software Access (Link to SOP10)
   j. Setting Up Workspace (Link to SOP11)
   k. First Day Tasks (Link to SOP12)
   l. Orientation Tasks (Link to SOP13)
   m. Probationary Meetings (Link to SOP14)

Each of the letters in this list would serve a specific purpose that has hierarchical steps. The full process to complete the fourteen tasks listed could require hundreds or thousands of steps, and the people involved could span across different teams of employees.

Flow Chart SOP

When processes depend on changing variables. use flow charts like the one below. To create an SOP template for a flow chart, you need to determine what the relevant decisions are.

As an example, we created this flow chart to help you decide what type of standard operating procedure templates to use. There are 3 relevant decisions that impact which template you should create:

1. Is there a process to follow?
2. Is the process difficult to follow?
3. Do decisions change the process?

Based on the answers, you get a different result that shows you how to make SOPs easier to follow. Using this strategy maintains organizational knowledge and can be the basis for an SOP plan, which we’ll discuss next.

What Is a Standard Operating Procedure (SOP) Plan?

An SOP plan is a document you may need to create when you grow from being a single person running a small business to hiring employees.

You have certain ways you like things done, and the best way to get employees to follow your hierarchical steps is to create an SOP for anything that is important to you. You’ll then train the employees using the SOP and provide them documents and work tools that make it easier to follow the SOP.

You might include the following elements in an SOP plan:

1. What SOPs you need
2. Templates for standard operating procedures
3. SOP naming conventions
4. When and how to edit each standard operating procedures template

Sample Standard Operating Procedure Checklist

We’ve created a sample standard operating procedure checklist for hiring and onboarding employees. Download the checklist along with the standard operating procedure guidelines and other templates we created to help you get started with SOPs.

SOP Frequently Asked Questions

What is an SOP?

The SOP meaning in business stands for standard operating procedure. The definition of standard operating procedure is a written process that is followed every time the process needs to be repeated.

Why SOPS Are Important

SOPs are important because the majority of tasks are repeated consistently during the course of business. Documenting and following standard operating procedures helps businesses:

1. Reduce decision making
2. Increase efficiency
3. Increase quality
4. Comply with government regulations
5. Train new employees
6. Maintain the body of knowledge

Technical vs. Management SOPs

Technical SOPs explain how to perform and complete tasks while management SOPs explain how to create, update, distribute, and oversee other SOPs. As an example, Technical SOPs are used for routine tasks like payroll, work orders, and inspections, while management SOPs are used to maintain consistency in the SOP full form creation.

How Businesses Use SOPs to Improve Efficiency

Every time you make a decision, you have to think about the factors that go into the decision. When businesses create standard operating procedures, they eliminate the decision-making process for that procedure, which increases efficiency.

This also makes training easier because everyone has the same method of performing a task. This standardization also decreases defects and errors, which leads to greater efficiency.

What is a Standard Operating Procedures Manual?

A standard operating procedure manual is a list of all standard operating procedures gathered in one place.

Today, an SOP manual is best kept in the cloud where all employees can access it, but for brick and mortar businesses, the standard operating guidelines may also need to be printed and stored in a readily accessible location.

What Are SOPs Doing for Your Business?

As you can see, there are many benefits to implementing SOPs in a business. No matter the size of your company, you can benefit from defining your standard operating procedures.

What are some ways that you have defined your business operations?

• Complying with Government Regulations
• Automating Processes
• Training Employees
• Other - Tell us in the comments!

Business ideas

Did you know that 69 million vehicles need to be towed each year?

That’s nearly 190K people who call up a towing business every day.

We talked to Vanice and Vincent Serrano, founders of ASAP Towing, to find out how to start a tow truck business that makes more than $10M each year. They provide insights on how towing services make money, how to hire employees, how to become a tow truck driver, and more.

[su_note note_color="#dbeafc"] We’ll share insights, strategies, and tips. Click on one of the links below to learn more about starting a tow truck business, or just continue reading.

• Tow Truck Business Case Study: ASAP Towing
• Learn About the Towing Industry
• How to Start a Tow Truck Business
  • Step #1. Identify Your Target Market
  • Step #2. Research Local Regulations
  • Step #3. Create a Tow Truck Business Plan
  • Step #4. Consider a Startup Loan
  • Step #5. Register Your Business
  • Step #6. Open a Business Bank Account
  • Step #7. Get Tow Truck Business Insurance
  • Step #8. Get the Required Licenses and Permits
  • Step #9. Buy Equipment and Tools
  • Step #10. Develop and Implement a Marketing Strategy
  • Step #11. Provide Great Customer Service
• Frequently Asked Questions
• Hiring Tips
• Top Towing Influencers
• Conclusion [/su_note]

Tow Truck Business Case Study: ASAP Towing

Vincent grew up working in auto repair shops owned by his dad, but he wanted to have a business to call his own. They already owned a tow truck and had land, so they decided to start a new tow truck company.

The business venture was mostly Vanice and one employee during its first year. About 18 months in, Vincent had to quit his day job and work at ASAP full time because it was making $250K per year.

The local tow truck company offers towing services for breakdowns, lockouts, accidents, impounds, and more. Check out our interview with Vincent and Vanice below.

Learn About the Towing Industry

Before we discuss how to start a towing company, it’s important to learn all about towing and how the industry operates. We’ll discuss:

• The cost to start a tow truck business
• The amount towing vehicles makes
• Industry profit margins
• Major players
• Industry outlook
• Legal requirements
• How to get a tow truck driver license

How much does it cost to start a tow truck business?

Vincent told us starting your own towing company requires around $10,000 to get a truck, licenses, and towing equipment. We’ll discuss individual costs more in other sections.

How much do tow truck drivers make?

As of January 26, 2024, the average salary for a U.S.-based tow truck driver is $44,198, with a range of $38,820–$50,211, and an average hourly rate of $18.54.

You’ll normally want to pay yourself this salary in addition to some profits from the business when you are an owner-operator.

Your location, experience, employer, skills, and education may impact the pay for tow truck driver jobs. Some drivers will also get bonuses and tips.

According to Indeed, the tow truck driver salary is highest in the following cities:

1. Milwaukee, WI
2. Sacramento, CA
3. Los Angeles, CA
4. Austin, TX
5. Las Vegas, NV

How much profit can a towing business make?

Transportation businesses normally make 30.59% gross margins and 5.91% net margins. Some people who own towing companies make up to 33.65% profit, which means that the Serranos are likely bringing in somewhere between $700K and $4 million in profits.

Who are the major players in the towing business?

Because many tow truck businesses are privately held companies, it is difficult to find accurate revenue numbers for the largest towing businesses. Along with ASAP Towing, some other large tow truck businesses include:

• United Road Towing: Dun & Bradstreet (D&B) estimates United Road Towing’s annual revenue to be $99M.
• Jamie Davis Towing: ZoomInfo estimates annual revenue is under $5M for this towing company.
• Certified Towing: Revenue is estimated at $1M, according to D&B.

What is the towing industry’s outlook?

IBIS World values the U.S. towing industry at $12.5B and expects it to grow around 2.9% in 2024. They expect it to continue growing at a faster rate after inflation settles down.

Any industry that exceeds the GDP growth in the U.S. is a great one to enter as a business owner.

What are the requirements for a tow company?

Before starting a tow truck company, you will need various tools, permits, and licenses. Consult your local small business office, the DMV, or a lawyer who specializes in tow truck businesses.

A tow trucking company will normally need:

• Drivers with class B driver’s licenses
• Business structure as a limited liability company (LLC) or corporation
• Comprehensive auto insurance with uninsured motorist insurance and higher limits than the state minimum (no less than $250K, but $1M is better)
• Business insurance
• High physical damage insurance
• An oversized vehicle permit (depending on what you will be towing)
• Indictment management permit (if towing without consent)

How to Get a Tow Truck License

To drive a truck with below a 26,000-pound towing capacity, you only need a regular driver’s license. You’ll need a commercial driver’s license (CDL) for anything bigger.

That means you’ll need to take a CDL course, which takes about a month. Then you’ll need to pass the DMV test.

Next, we’ll look at how to start a tow truck business.

How to Start a Tow Truck Business

Starting a tow truck business requires special considerations because of the nature of dealing with vehicular accidents and repossessions. You’ll want to follow the process below to start a successful towing business:

Keep reading to learn how to start a towing business.

Step #1. Identify Your Target Market

Tow truck companies use multiple business strategies to bring in revenue. An indispensable strategy is identifying your target market. Potential customers include:

1. Insurance companies: Companies like AAA and Roadside America need towing and roadside assistance for their customers.
2. Government agencies: These entities impound cars and need someone to tow them. Not that there may be minimum truck requirements.
3. Banks and lenders: Repossession services work with banks and lenders. Learn more about repo laws on the American Recovery Agency website.
4. Motorists: Towing businesses can also work with civilians to tow vehicles when they break down or are otherwise immovable.
5. Subcontracting: Many businesses outsource their towing needs.
6. Automotive companies: A towing business might also work with car dealerships and auto auctions to deliver cars to dealerships or customers.

Step #2. Research Local Regulations

Every towing business needs to understand the local, state, and federal laws that the automobile towing industry operates under. Make sure to check the regulations for all levels of government based on the towing services you provide.

A tow truck operator will normally be governed by federal law in two scenarios:

1. Maximum towing capacity for different types of trucks
2. Interstate commerce laws, which come into play when commercial vehicles cross state lines

States and local governments will often have laws and regulations that govern the tow truck industry, including minimum tow truck insurance and CDL requirements.

Step #3. Create a Tow Truck Business Plan

You don’t have to write a towing business plan, but it won’t hurt. It will help you keep track of how your towing company is progressing toward its goals. Tow truck business plans should follow a process similar to this:

1. Find customers.
2. Get your permits and licenses to drive a tow truck.
3. Start your company.
4. Buy a tow truck.
5. Start towing vehicles.
6. Follow a marketing plan to take on more work.
7. Buy more trucks.

Download our business plan template, then check out our interview with Mike Andes on how to write a business plan below:

Step #4. Consider a Startup Loan

Starting a towing business isn’t cheap. With the cost of a flatbed truck, tow truck insurance, commercial auto insurance, and small business insurance, you can expect to spend $10K to start a towing company. Other sites estimate the tow truck business startup cost can range from $62 to $2M.

• Personal funds or assets
• A loan from family or friends
• Funds from a business partner
• Government programs
• Crowdfunding
• Credit cards
• Home equity loans
• Business loans (Check out our partners.)
• Rollover for business startups (ROBS)

The Small Business Administration (SBA) offers free courses on financing options and funding programs. For info on using personal funds to start a business, check out this article from The Hartford.

Step #5. Register Your Business

Registering a tow truck business will require you to:

1. Choose a business name: You’ll want a tow truck business name that is available as a website domain name, social media handle, and registered business name with your secretary of state and the U.S. Patent and Trademark Office. Check domain availability on GoDaddy.
2. Create a business structure: You’ll want to get either an LLC or a corporation when starting a tow company. You do not want to get a sole proprietorship because it will expose your personal assets to a lawsuit if you get in a wreck with the tow truck.
3. Apply for an EIN: An employer identification number (EIN) is required to file taxes for business entities on the IRS website. It is also used to associate employee payroll taxes with the correct company.
4. Acquire a sales tax permit: Most states have a sales tax, and you need to adhere to their requirements. This blog isn’t the place to discuss the permits for all 50 states, but Avalara has a guide on sales tax permits. Check it out.
5. Labor law posters: All employers must display workplace posters that signal they’re following labor laws. You can download them from the Department of Justice website. You must also follow all hiring laws.
6. Unemployment Insurance (UI): You’ll have to pay about $420 per employee on a federal level plus any state UI. Check the U.S. Chamber of Commerce for more information.

Step #6. Open a Business Bank Account

Having an open bank account for your business is crucial to keeping your personal finances and tow truck business finances separate. If you have a limited liability company or a corporation, you’ll also need it to get business loans and personal liability protection.

If you have a business bank account, you can also get a business credit card and potentially commercial truck financing.

Step #7. Get Tow Truck Business Insurance

You’ll want a variety of insurance policies when you own tow trucks. You’ll want:

• Auto liability insurance: covers the vehicle owner if one of their tow truck drivers gets in a wreck
• Uninsured motorist insurance: covers your flatbed truck and your employee if an uninsured driver hits the vehicle
• Workers compensation insurance: covers the medical fees and lost work if employees get hurt or killed on the job

When you own tow truck company assets, you’ll also want various types of business insurance, like general liability, a business owner's policy, and commercial property insurance. Try Simply Business to get quotes from many of the best business insurance companies.

Step #8. Get the Required Licenses and Permits

As stated, tow trucks may require you to apply for additional permits and licenses. We suggest anyone who wants to tow vehicles reach out to a local business law attorney to verify that they have complied with all laws and regulations.

Step #9. Buy Equipment and Tools

One of the major business expenses for a successful towing company is the cost of flatbed trucks for hauling wrecked vehicles. Some of the places you can find the different types of tow trucks include:

• A bank repoed tow truck sale
• Craigslist
• Auto auctions
• Failing tow truck businesses
• Commercial Truck Trader

Step #10. Develop and Implement a Marketing Strategy

You’ll want to focus on marketing when starting a tow truck business. Vincent suggests using the following marketing for tow trucks:

• Website
• Google Ads
• Instagram and Facebook
• Videos platforms

Launch a Website

Creating a website helps people get the information they need about the services you offer, how much they cost, and where your business is located.

Some services you might list on your website include:

• Roadside assistance
• Repossession services
• Impounding and storage
• Vehicle auctions
• Heavy-duty towing services

Tow places should optimize their website for search engines for search engines. For example, adding a Google Map location to their website’s footer can help it show up higher on Google.

Vincent told us he has one company that does his videos, another that does search engine optimization, and a third that does social media. You can find all-encompassing services, as well.

Google Ads

Your business budget should include some expenses for advertising on Google. Vincent told us:

[su_quote]We’re spending a little over $1,000 per month on Google right now.[/su_quote]

Instagram and Facebook

Vincent told us that he is fairly new to Instagram, but it is starting to provide some returns. He said he has found success on Facebook.

Videos

Like many business owners, Vincent is starting to get into video marketing.

When you start a tow truck business, you can create videos about the common types of calls a tow operator gets. You can also explain how to do things like change a battery, replace a tire, and what to do in an accident—but make sure not to give any legal advice.

How much should a towing business spend on marketing?

Established tow truck companies should spend between 2% and 10% of desired revenue on marketing, depending on whether they are marketing their towing business to businesses or consumers. Business-to-consumer companies normally spend more on marketing.

According to entrepreneur Thomas Minieri, new companies should spend up to 20% of their target revenue on marketing to help them grow faster. You will normally want to spend between 15% and 20% of your budget on advertising costs.

Despite the suggestions, many small business owners spend much less on marketing. For instance, both Kenneth and Vanice spend less than 1% of their revenue on marketing.

Step #11. Provide Great Customer Service

Tow companies need to provide great customer service. Whether you’re towing for law enforcement, a business, or people in need of repairs, you should try to be compassionate.

Towing companies often provide emergency roadside assistance, but some partner with other businesses to transport vehicles that are (often unintentionally) parked illegally. When someone gets their car towed, remember they may not have known that their car was parked improperly.

Now that you know how to start a tow truck business, let’s look at some frequently asked questions about the industry.

Frequently Asked Questions

We’ll start with the question on everyone’s mind:

How much do tow trucks cost?

There are a few different types of trucks:

• Flatbed tow truck for sale
• Ramp trucks for sale
• Wrecker truck for sale
• Integrated tow truck for sale

In most cases, expect to spend $25K or more.

How can I start a successful tow truck business with no money?

You have to start somewhere. Kenneth suggested the following solutions:

1. Can you finance?
2. Can you get a lease on a truck?
3. Can you ask friends and family?

He also told us:

[su_quote]I went looking for a loan so I could buy a tow truck and found out that you can’t get a loan to start a business unless you’ve been in business for two years.

I wound up going into it on a lease, rent to own. The truck sold for $50,000. By the time I’m done paying for the truck, it’ll be $106,000.[/su_quote]

He went on to say:

[su_quote]The benefit of leasing is you can get into a vehicle with a limited amount of money. The downfall of it is, if you don’t find the right leasing company, you’re gonna be paying them to double whatever the original amount was. So do a little diligence and find out. If they say there’s no puny penalty for prepayment, make sure that the amount is going to be adjusted.[/su_quote]

There are more ways to fund a towing company.

Common funding paths include:

• Personal funds or personal assets
• A loan from family or friends
• Funds from a business partner
• Government programs

The SBA offers free courses on financing options and funding programs. For info on using personal funds to start a business, check out this article from The Hartford.

Running the tow truck company is what you will spend most of your time doing. This includes aspects like hiring employees, helping customers, keeping inventory in stock, accounting, and payroll.

Hiring Tips

Kenneth had a lot to say about hiring drivers. He said the most important aspects of drivers are:

1. Do they have the required licensing?
2. Do they stay in communication with the owner?
3. Do they have mechanical experience, or are they willing to learn?

Without the required licensing, they won’t be able to earn money. But the other aspects are more important to focus on for the bigger picture. Here’s what he had to say about communication:

[su_quote][An employee is valuable] when they stay in contact with you and they keep you aware of what’s going on with your vehicle. If they’re having any problems, just tell me what your problem is. And I will give you the answer, ’cause my job is to help you.[/su_quote]

He also emphasized the importance of being mechanically inclined:

[su_quote]I’ve hired three people in the last month. I had to fire one quick because I explained to ’em, you know, the truck needs maintenance. I can’t be driving 16 hours a day and work on my truck, your truck, and everybody else’s truck.

It’s just not gonna happen. You have to take care of the truck. So, if you don’t know how to be a car mechanic, that probably is a tough spot to begin with.

I’m even willing to teach you what you need to know. I don’t have a problem with that because we succeed together as a team or we fail as a team.[/su_quote]

Top Towing Influencers

Find out what other people in the industry are doing:

• Jamie Davis Towing: Check out his YouTube Channel
• Get Hooked: A towing industry Podcast

Conclusion

We’ve covered how to start a tow truck company; now it’s your turn to get the licenses and permits, find some customers, get a truck, and start towing.

If you’ve already started one, what has been the most challenging part of starting an independent towing service?

Business ideas