How to Create a Small Business Organizational Chart and Why They’re So Important

Did an employee recently give feedback about feeling overworked? Has someone asked about where and who to report to? Or are you starting your own company, and you’re wondering if you actually need a business organizational chart? The straight answer is yes – absolutely!

For more than a century, organizational charts have been a crucial part of the corporate world. But practices in management and structures in companies have changed drastically.

Here, we’ll help you understand the importance of business organizational charts and which type would work for your company. Let’s get to it!

What is a business organizational chart?

An organizational chart is a visual chart that serves as a guide to the company’s structure or hierarchy in the form of a diagram. It indicates the chain of command to show the departments that exist within a corporation.

You can consider it as a GPS for navigating the company, as it can consist of all the employees’ pictures, names, job titles, roles, and even contact information.It will help them know which employee reports to whom.

Why does a small business need an organizational chart?

Regardless of size, pretty much all companies need an org chart because it’s the basis of every system and process. But let’s dive deeper into why they’re advantageous.

5 benefits of small business organizational charts

Here are five benefits of using an organizational chart for your small business.

#1: All staff know their role in the company

We already mentioned this, but it’s actually one of the primary reasons why an organizational chart will be helpful. When hiring new personnel, they may get to meet some of the people who currently work in the company, but it will be challenging to remember employees’ names, responsibilities, etc., without an organizational chart to hand.

Whether your employees are back in the office or are doing remote work from home, it’s best if they can access a visual diagram that will help them understand reporting relationships. An employee who’s confident about their role and the chain of command in their firm will be able to play their position smoothly.

Still, a small business organizational chart isn’t just for new hires. They can also inspire staff if your corporate diagram shows the hire date and promotion history.

Career growth is one of the things that motivates employees. Take organizational charts as an opportunity to showcase how your company’s current success and the growth of the people who work for you.

#2: You’ll be more efficient in allocating labor resources and making decisions

As a goldmine of information, you can use your business diagram to support data-driven decisions, which applies to hiring teams or HR professionals.

The business structure will serve as a starting point for them to analyze what a specific department or team needs to be more productive.

Let’s say there’s an entire team that clocks in more hours than the others. Their first source of info would be the chart. What specific department they are in and their roles. Are they understaffed? Are their team members all full-time employees or interns?

Besides that, you’ll be able to help shareholders or potential investors see your company’s core structure and how your business operates. Seeing the parts of your organization may be a basis for them to recognize further growth and success if they decide to invest.

#3: It can help prevent duplicated work and silos

If you want to improve operating efficiency in your business, organizational silos are one of the first few problems you want to avoid. This is where the diagrams can help you break down issues that hinder morale and innovation by inspecting the functions and processes handled by every department and team.

It may even be an overlap between marketing and sales, IT and operations, as well as Finance and HR.

And if your small business uses an approach where everyone is hands-on, it’s a double-edged sword because everyone’s working, but you’ll have trouble knowing who really deserves the credit or who is actually doing what.

With all the confusion, assessment of their work can also be a challenge. So, having a business organizational chart will not only help you identify everyone’s tasks, but you’ll also be able to control the work culture better by sharing the work equally.

Let your people know that the entire company functions properly only if they adhere to their role strictly, without having to throw your compassion as a leader out the window.

#4: It boosts collaboration and communication

Staff members at different locations can result in inefficiencies and challenges. To steer clear of this struggle, especially when the pandemic disrupted the flow of business, many companies have found a way to collaborate effectively using technology and by creating or updating processes.

So aside from the org chart from the physical office, digital diagrams that department heads, managers, and employees can access are significant, especially for those who do remote work or work with virtual teams.

A business organization chart says a lot about you and your company’s values and ideas, such as responsibility, leadership, management structure, and growth.

#5: Your company will be able to hire and develop skills better

The roles of the Talent Acquisition team don’t only include the recruiting and hiring process but also the onboarding, development, and succession planning. So, drafting a hiring plan, a program for their careers, and a strategy to reach success all begin with a comprehensive and functional structure from org charts.

Knowing where you are, nd your role will help you learn the path to move forward, which will help you improve your plans for the future.

Even if you don’t have an HR team or recruiters, having a system that includes an accurate background of your workforce will allow for a more cost-effective hiring process. Small business owners will have a method of taking care of others’ work if they fail to deliver.

Types of business organization charts

There are many types of organizational charts that you’ll find when you make a quick search online. But to make it easier for you to choose the best one that makes sense for your company, we listed the top small business organizational structures.

Horizontal organizational chart

Also known as a flat organizational structure, this diagram is more suitable for small businesses with no supervisory or middle management roles. Despite being a rate type of structure, it warrants teams and individuals to self-manage.

Vertical organizational chart

This is the most common structure seen in many businesses, which is also called a hierarchical organizational chart. It shows a traditional top-down organizational chart. Its layout shows the business owner or CEO at the top, then the director, department managers or supervisors, and employees.

It’s divided into the usual departments like operations, IT, human resources, and so on, but individuals or teams with the same expertise are grouped.

This is where accountability and compassion are equally applied because job descriptions and roles are clarified in the hierarchy.

But thanks to technology, there are many layouts for this type of business structure, like:

• Simple vertical organizational chart
• Bold vertical organizational chart
• Modern vertical organizational chart
• Vertical smart organizational chart
• Vibrant, functional smart organizational chart
• Divisional organizational chart

If your whole company is organized based on geography or product lines, then this might be the organizational structure that would work for you.This diagram breaks down the businesses of different departments or teams with their own areas of focus.

Each division has its own services, sales, and marketing manager and team, and operates independently from one another while having similar functions. In this structure, representatives from each functional area that’s related to the project are assigned by managers.

Matrix organizational structure

Businesses that divide their team depending on the particular product their handling while still reporting to a functional manager might be interested in the matrix organizational structure. It combines traditional organizational diagrams. It fosters open communication and collaboration and operates cross-functionally.

It’s suitable for project planning needs as it highlights functional or departmental managers and their direct reports, and also the project managers and their reports.

Large companies with multiple ongoing projects also use the matrix organizational chart, as it’s also easier for them to collaborate with other departments.

You may also have heard of other business organizational chart templates, like Creative, Holarcti, or Zappos Circular, but the organizational chart examples we mentioned are more than enough for you to start planning your own small business diagram.

How to create a small business organization chart?

Although most people would recommend the hierarchical structure as many companies choose it, you’re still the one who can decide which chart makes the most sense for your business.

To start building your small business organization chart, follow these steps:

Determine and outline all your employees’ roles.

Doing so will help you get a visual representation of the organizational structure of your business and how everyone is interconnected. Is it better to use the traditional hierarchical chart or a matrix structure?

Collect your staff’s information that you want to include in the org chart.

Gather their complete names, roles, skills, and any other information that you may end up using in the chart. Other than the name and job title, adding employee headshots will make them more familiar with each other.

Decide on how you would lay out all that info with the org chart and style you chose.

We mentioned that there are numerous templates out there for small and big businesses. It means there are plenty of ways for you to display your employees’ image and info. This is where you’ll decide the most important pieces of info you would include in the chart.

Share the organizational chart you made with a trusted leader or mentor, then with your employees.

Have a trustworthy department head or project manager who can look at the chart to ensure that it makes sense, as they’re more hands-on with the day-to-day business operations. Then, show it to your employees. Once the company grows and there are changes in the reporting structure, clarify it with the supervisor and personnel before updating your org chart to avoid misunderstandings.

Frequently Asked Questions (FAQs)

What’s a company’s hierarchy?

A company’s hierarchical organizational structure shows how the people within your business are organized according to their specific functions. They can be assigned to various departments in relation to what they’re tasked with doing, as well as the scope of where they’re allowed to operate within, and so on.

What is the structure of a small business?

There are 4 common types of business structures, which include sole proprietorship, general partnership, limited liability company or LLC, as well as corporations like S-Corp and C-Corp.

What’s the best organizational structure for small businesses?

A small business organization can utilize any of the several organizational structure models, such as the functional, divisional, flat, and matrix business structure chart. The main purpose of a small business organizational chart is to show the supervisory relationships within the company’s hierarchy to facilitate smooth operations and efficient management of resources– such as capital, materials, etc.

What’s the difference between organizational structure and organizational chart?

The Organizational Structure of a company shows the business model or how it works and is designed around its key functions, e.g., finance, customer service, marketing, etc. On the other hand, an Organizational Chart is about hierarchy (who’s in charge of whom) within an organization and each person’s role within the business.

What are the 4 types of business organizational structures?

The four types of business organizational structures are traditional hierarchy or vertical, flat or horizontal, divisional, and matrix organizational chart.

Conclusion: What should I do after I build my organizational chart?

Being at the top and managing a company can be lonely and difficult, but also exciting and challenging. It’s a never-ending responsibility, and a business organizational chart will only help you establish a structure for your business, but it shouldn’t stop there.

Making the org chart will already give you an idea that leaders, including small business owners, should pay attention to employees. It’s your duty to protect them whenever they feel vulnerable and listen when they talk about their experiences or give feedback.

Show them that you provide a safe space for discussing opinions and ideas by allowing them to honestly and openly discuss their performance.

Don’t forget to equally use accountability and compassion daily. A firm with a system and culture that facilitates efficiency, transparency, and growth can lead the business to great success. That includes creativity, friendship, a few laughs, and increased productivity.

And lastly, model your ideal employee. Leaders should be the ones to demonstrate the behavior they expect while showing empathy.

A way to put things into perspective is to step back and think about what the big picture really is. Once you can see that, then you’ll be able to visualize your company’s overall goal and get motivated with a new sense of making important changes in order to reach it.

Which business organizational chart did you choose for your company? Share what org chart you picked and why by leaving a comment below.

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