De-Risking Operations
The Role of SOPs, KPIs, and Key Person Insurance
The first time I walked into a business that looked perfect on paper but was held together by duct tape and the sheer will of its founder, I knew any exit the founder envisioned was dead before it even started. The numbers were solid, the customer base loyal, and the market expanding. But all it took was one question…“Who else besides you knows how this place really runs?”…for the room to fall silent.
That silence is where valuation evaporates.
Most businesses underestimate how fragile they really are. Founders wear their operational chaos like a badge of honor, convinced that “nobody can do it like me.” That mindset might get you through the early years, but it will choke your exit.
Buyers don’t want heroics. They want repeatable, transferable systems that survive the founder stepping away.
Here’s the brutal truth: if your business depends on one person’s knowledge or energy, it’s not an asset. It’s a risk dressed up in quarterly profits.
And buyers know it.
It is common to see valuation cuts of 20–30% because a founder couldn’t show a single documented process. Deals stall because no one tracks performance beyond the bank account. And I’ve watched an otherwise strong deal collapse when the buyer realized the founder’s sudden absence would take the entire company down with them.
So, how do you de-risk operations and protect both your valuation and legacy?
It starts with three levers that seem simple but are often ignored: Standard Operating Procedures (SOPs), Key Performance Indicators (KPIs), and Key Person Insurance.
SOPs are the antidote to chaos. Documenting how the business actually functions, everything from onboarding a client to handling customer complaints, transforms tribal knowledge into transferable value. I once advised a company where the founder had built every process in his head. We worked with him to build SOPs, and not only did it increase buyer confidence, it actually boosted his EBITDA because his team suddenly operated more efficiently.
KPIs make the invisible visible. Revenue and profit alone don’t tell the whole story. A buyer wants to see how you measure customer retention, sales pipeline velocity, or production efficiency. The first time a founder shows a dashboard of real performance metrics, not just vanity metrics, the conversation shifts from “Can this company survive without you?” to “How fast can we scale this once we acquire it?” That shift is worth millions.
Key Person Insurance is the overlooked safety net. Too many founders treat insurance as a cost instead of a strategic shield. But to a buyer, knowing that the company can financially weather the loss of a critical executive isn’t just reassuring…it’s essential. I’ve seen deals where the existence of key person policies tipped the balance from hesitation to a signed LOI.
If you can’t show a buyer that your business survives without you, you don’t own a business. You own a job.
When you install SOPs, define KPIs, and secure Key Person Insurance, you’re not just protecting your downside, you’re writing a story buyers want to believe in. A story where growth doesn’t depend on heroics, but on systems that scale.
And the payoff is real. An entrepreneur I recently met exited with a 27% higher valuation than initial estimates, simply because he had invested the time to make her business transferable. That’s the hidden ROI of operational discipline.
The hard truth is this: chaos may build a business, but systems sell it.
David Hermann, CEO of hermanngroup and M&A Advisor/Broker at Sunbelt Business Brokers of Colorado
David Hermann is a transformative advisor and strategist who turns complex business challenges into extraordinary successes. Known for driving over $500 million in documented financial improvements for clients, David partners with C-suite leaders to unlock their full potential. With 60+ speaking engagements, numerous publications, and a spot in the top 1% of Consulting Voices and top 1% of the Social Selling Index on LinkedIn, he’s passionate about making strategy, change leadership, and operations insightful and accessible.