How and Why to Create a Small Business Organizational Chart

Open lines of communication and help people know where they fit in

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An organizational chart is a visual way to define the structure of your team in clear terms so each person in the organization knows who they report to in the chain of command, and how all roles fit together.

Different types of “org charts” apply to varied organizational structures. Here are several different types of charts, and why you may want to consider creating one, even if your business or practice is small.

Why Use an Organizational Chart?

Depending on what stage your business is in, it might currently be easy to keep track of where each employee fits in the team. Eventually, though, without a defined structure, lines may blur and the chain of command could become less obvious. This can make it much easier for people to pass the buck, shirk responsibility, or undermine management authority as your company grows. Organizational charts help implement a small business structure that coordinates employees with the company’s strategy and vision. 

A small business organizational chart will help you:

  • Define management hierarchy and authority
  • Clarify roles within the company
  • Explain lines of communication
  • Help orient new hires and remote employees
  • Enhance operating efficiency
  • Plan for the future
  • Show investors and partners that your business is organized for success and that crucial roles are filled, which may be an element of your business plan

Organizational charts help your business stay on track as it grows larger and more complex. They define what department everyone is attached to, who is in charge, and who to contact.

Using Different Types of Org Charts

Most small businesses start with a simple line, or hierarchical, structure. You may need to switch to a different type of organizational chart as your business grows and new departments form or offices open in multiple locations.

Line Organizational Structure

The simplest chart to start with is a line, or hierarchical, organizational chart. It’s a top-down pyramid structure with the business owner or CEO at the top, department heads or managers next, and employees listed under each manager or department head. Layers can be added as necessary. For example, your company might have a department head overseeing several managers, followed by other employees who report to only one manager. 

Line organization is traditional, and communications are expected to follow the chain of command. While most businesses today are less rigid and foster more open communication, this structure is handy for understanding which manager is responsible for training, hiring, and various other business activities.

Functional Organizational Chart

While this common type of organizational chart is similar in structure to line organization, functional organizational charts group employees together based on the specific functions they perform. This type of chart is well-suited to a small business, where different parts of the operation collaborate regularly. 

A restaurant, for example, might have an owner, a general manager, a kitchen manager or head chef, several shift managers, a head bartender, a head server, and then many servers, dishwashers, food runners, bus boys, and then other employees on the bottom layer. When there is a problem, servers may talk to any manager, including the head chef or general manager, about a solution.

Functional organizations allow teams to collaborate across departments without chain-of-command complications.

Project-Based Organizational Chart

If your business runs different projects at the same time, a project-based organizational chart may be your best option. Construction businesses, for example, may assemble teams of workers for each project based on available supervisors and workers, and teams may change from project to project as special skills are needed elsewhere. Team members are chosen for their specific skill sets, and may be assigned to a different project with different leaders and team members for each job. In a project-based organizational chart, executives are at the top, and project managers are beneath, clustered with the current team members assigned to the project. 

Other small businesses may adopt a project-based organizational chart to address special projects drawn from all over the organization. Law firms may assemble diverse teams to collaborate on important cases, or marketing companies may need team members with different skills for certain initiatives.

Establishing a project-based org chart can give teams clarity about their roles for their specific projects.

Matrix Organizational Chart

Matrix structures are as complex as they sound. This type of org chart provides team members with info on how reporting works from the top down and across teams. A matrix structure depicts cross-functional teams with more than one chain of command, where team members are assigned to multiple projects and report to more than one manager. 

In a marketing company scenario, for example, graphic artists and writers may work on a number of deliverables for various marketing initiatives at the same time. They would communicate and report to the account representative or project manager in charge of each project, as well as to their own department managers. In addition, they collaborate with other creatives.

Steps to Creating Your Own Chart

There are a number of free or low-cost tools online to help you create different types of organizational charts. Here’s how to get it done.

First, determine what type of organizational chart best fits your small business.

Next, make a spreadsheet containing the information you want to include in the chart, or find a program compatible with your HR software, customer relationship management (CRM) system, or employee database. Typical information may include:

  • Photo
  • Name
  • Department or supervisor
  • Job title
  • Contact information

Then, choose an organizational chart generator. There are a few popular options online, though not all of them are free:

Last, just import your information into the program you like best and save it. If your information is organized, it should only take a few minutes.

The Bottom Line

When choosing an organizational chart software, bear in mind that you’ll need to update it on a regular basis. Most online organizational chart services offer paid plans that integrate with your existing employee database and update automatically when employees leave, are hired, or change positions. If you own a larger company with a lot of employees, an digitally integrated app could save you time and labor costs on maintenance. Plus, it may always be up-to-date.

Realistically, if you have a tiny company with just a few employees, you may not need an organizational chart. But we bet it will come in handy in that moment when you can’t remember the names of the last few people you hired or whether someone reporting to you works in administration or accounting.