The Small Business Organizational Chart: How Important Is It and When Should You Make One?

An organizational chart (also called an org chart) is a valuable resource for companies with many employees, departments, and areas of responsibility. It helps everyone understand who reports to whom and lays out specific lines of communication and responsibility. When there are a lot of people to keep track of, a written record can keep everything straight. But what about small businesses that have fewer employees and simpler structures? Is an organizational chart still necessary? 

What Is an Organizational Chart? 

Before deciding whether you need an organizational chart for a small business, you need an understanding of what it is and how it’s used. An organizational chart is a diagram that shows the structure and hierarchy of a business. It outlines the chain of command and the relationships between employees and departments. At its most basic, this chart shows the name and job title of each person working at the company. It sometimes includes other information such as a photo, the department the person works in, and basic contact details. 

There are several different types of organizational chart that reflect the different kinds of company structure. A small business organizational chart will often use one of two common structures: hierarchical or flat. 

Hierarchical Structure 

Also known as a top-down or line structure, this is a traditional business structure and one of the most common ones in use. A hierarchical organizational chart is shaped roughly like a pyramid, with the owner or executive team at the top, followed by various levels of management and then the employees that work under them. It is typically divided into different departments and has strict lines of communication. This structure is often used by large corporations and government departments, but it’s also one of the most straightforward options for small businesses. 

Flat Structure 

This structure has little or no middle management between the company leaders and the other employees. It allows for more direct lines of communication and independent decisions, as these things don’t have to pass through multiple levels of management before something gets done. Small businesses and young startups often adopt this structure as it allows for greater flexibility and more agile operations, with more responsibility and accountability for lower-level employees. 

There are several other types of organizational structure with varying levels of complexity and flexibility, but the above two are the most common and most relevant to small businesses. 

Benefits of a Small Business Organizational Chart 

Organizational charts aren’t just for large companies with hundreds or thousands of employees. They provide many benefits even for small businesses, especially for companies that are planning for future growth.  

Planning and Troubleshooting 

From a management perspective, an org chart can provide a high-level view of your entire business and help identify any gaps in your structure, where no one has responsibility for a certain area or a particular department is under- or overstaffed. It can also highlight positions that might benefit from greater collaboration or where employees might face confusion or conflict regarding who they report to. In addition, an org chart can help you plan for future growth by letting you visualize the impact that new hires and promotions will have on your company’s structure. 

Adapting to Change 

A small business’s organizational chart makes it easier to visualize changes as employees leave, change teams, or receive promotions. All of these movements influence the structure of the company and can leave gaps that need to be filled or can otherwise affect the balance of the workforce. An updated org chart helps the whole team understand these changes and how they impact the company. 

Clarity for Employees 

Even when your organization is small, having a clear organizational chart can help employees understand who they report to, who they work directly with, who they should go to with a suggestion or problem, and who can make a particular decision or delegate authority.  

This especially benefits new hires who are still learning about your company and how to navigate it. Efficiency improves by reducing the time that is lost when someone reaches out to the wrong person for something, which can happen more often in small companies where any given person might wear multiple hats or work in multiple departments. It can also help managers plan cross-team projects by providing an overview of available resources. 

Connecting Remote Workers 

With many people continuing to work from home either part-time or full-time, and many people working from a completely different location than where their employer is based, some team members may never see their coworkers in person. This can be especially common in small businesses who may not use a physical office space. For those whose interactions with other people are confined largely to text and online meetings, an organizational chart can help identify who’s who and learn how the organization is structured. 

Does Your Small Business Need an Organizational Chart? 

There are a few circumstances where an organizational chart may not make sense for your small business. If you’re a sole proprietor, an org chart probably isn’t going to be of much use to you. But with even just a handful of employees, it can help keep everyone on the same page when it comes to responsibilities and authority. 

If you don’t think you have any use for an org chart right now, consider whether it will be useful to have for the future. If you’re planning to grow and add more staff, you’ll need one down the line, and creating it early will help you plan and save you some effort when you do start expanding. If you’re looking for investors in your business, whether from venture capitalists or from crowdfunding, you’ll likely want to be able to show them an official document of your company’s roles. 

It’s useful to remember that even if the organizational structure is perfectly clear to you, it may not be so clear to other members of your company. Laying everything out in an easy-to-read document can assist people who you might not even realize are in need of help, and will set you up for future success as your business grows and changes. 

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