Standard Operating Procedures, also known as an Operations Manual, are vital to ANY business, especially those requiring multi-level management. Essentially, it is a step-by-step “how-to” guide describing how you (or someone you hire) should be completing tasks associated with the business. This article will explain why standard operating procedures are essential and how landlords can implement them into their rental property business.
Did you know that 95% of franchise businesses succeed, leaving a failure rate of 5%? In comparison, 20% of non-franchise small businesses fail annually. What’s the difference? Franchisee’s purchase with all systems in place. They have been tried and tested and then taught to the new owner for them to step into a successful business model. Do you plan on DIYing your property management business forever? Can your rental property business run without you? I didn’t think so. So let’s look at why detailed standard operating procedures are essential for you as a landlord.
If you are on the path of growing your rental property business so you can supplement a 9-5 job or retirement, then your level of management will constantly be changing. Owning a couple of single-family homes is different from operating a few multi-family dwellings. Multi-family brings in more money, but it requires more time, energy, and know-how.
Sure, you can hand it all off to a property manager, but what if you haven’t budgeted for that expense? What if you cannot find a PM that will work as diligently as you do? Whether to a property manager, a family member, or an employee you decide to hire, you will eventually hand your business off. When you do, don’t you think it would be helpful to that person taking over to have a guide to follow?
Surely, you will take a vacation from time to time. Let’s hope it’s more often than not at all! Most of our vacations are to our mountain home, so we can still field phone calls. Do we want to? No, but we do because they are few and far between. When we take off to Hawaii or on a European vacation, we hand the operation over to our team. Each knows the tasks they are responsible for and how to handle most scenarios that can arise.
If a landlord should prepare for anything, prepare for the worst case scenario. We have experienced car accidents, illness, and sudden deaths of loved ones. When unfortunate circumstances arise, having standard operating procedures defined allows you to hand it off to almost anyone to pick up the slack. Have someone to call forward your work phone to theirs and let work go so you can help, heal, or grieve.
If you consider selling your rental property, do you think a newbie investor might find value because you have all of your systems spelled out, and someone can step in and take over? You don’t see this often, but it does add some value to your sales price.
Operations manuals are not only critical to the operation of your business, but they are often critical in the resolution of any number of different types of legal disputes. They are often the focus of lawsuits and can contain evidence in several varieties of claims. These claims include personal injury and Fair Housing claims.
One of your attorney’s first questions is, “Do you have an operation manual?” or “Do you have your Standard Operating Procedures written and available to your staff?” If you have one and show that employees follow procedures carefully and use checklists to perform tasks, you will go a long way towards showing you have done nothing wrong or have done all you could to avoid the situation.
So those are a few examples of WHY you should have an operations manual stating all your standard procedures. Let us now discuss the WHAT and HOW behind it all.
Are you starting to understand the importance of standard operating procedures? Let’s continue.
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WHEW! Well, that was a lot of information! As you can see, creating standard operating procedures is no small feat. It will take time and diligence. So, let’s talk a little bit about HOW to complete an operation manual.
The process depends on what level of technology falls within your comfort level. Some suggest starting with a hard copy first. A paper form will help with the visualization of how the manual layout. Many sections may contain duplicate information, but this would be helpful when an unfamiliar eye is searching for the one thing they need. For instance, you may have details about your set criteria in both Marketing/Advertising and Vetting the Tenant.
Start with a large binder and use good old-fashioned tabs to divide the sections. As you work along, submit information behind each related tab. When the binder is complete, you have a hard copy you can keep in your office (locked cabinet) in case of an unfortunate event. You can scan it in as a PDF, or if you have written it out over several files, you can combine them all to create one significant (Word or Google) doc to be saved on your computer or shared with others.
We recommend that at least one other person has a copy in their possession if you cannot share it personally. Consider whoever might take over in case of an emergency, like an adult child, spouse, or another rental property owner. They should have a copy as well as your attorney. If you store it as a Word or Google doc, everyone will have an updated document when you make changes. Whoever it is, make sure it is someone you trust entirely as you are sharing very personal information regarding access to accounts, key locations, tenant files, etc.
Our best advice is to start small. Begin with what you know and build your standard operating procedures from there. Having your criteria stated is of utmost importance. How you train for Fair Housing laws is equally important. Use our guidelines above, create an outline of what you want to include, and go from there. It’s a huge undertaking, but it’s one task you will not regret. Think of it as creating a Will and Trust for your rental property business. It’s no fun and not something you ever hope to utilize, but it will bring security and relief to you and your loved ones if needed.
Please leave us a comment letting us know what you think of our blogs! Questions? Contact us at Stacie@YourLandlordResource.com OR Kevin@YourLandlordResource.com.
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