John, a client, called in a panic. One of his best employees resigned out of nowhere. Apparently, Stacy felt she wasn’t given enough opportunity, so she found a new job. John sighed, “Millennials. Now I have to start all over again.”

Let’s pause and review this situation: John invalidated Stacy’s experience by attributing her departure to her generation rather than consider the truth of her feedback and its relevance to how John runs his business. Stacy didn’t try to change her situation by speaking truthfully to John, instead, she chose to surprise him with her resignation.

organizational chart for small business - why you need an org chart

What this tells me is that John is likely not as focused on his employees as he needs to be to run a healthy company and that Stacy felt angry enough to give no warning. It’s possible she didn’t feel safe or wasn’t shown that it was safe to speak her truth.

Does this resonate with you? If we think about our small business, there are two parts to it:

  1. The product such as healthcare, real estate, or pizza.
  2. The interpersonal relationships we have with our colleagues, clients, and vendors.

John’s crisis is all about interpersonal relationships and where they can go awry. If we business owners focus solely or mostly on the product and disregard the personal aspect, we’ll likely have a rotating door of employees — and that gets expensive.

That’s where building an organizational structure and creating an organizational chart for our small businesses can make a big impact.

In this post, we’ll talk about:

  • What an organizational chart is.
  • Why you need a small business organizational chart.
  • Types of small business organizational structures.
  • Examples of effective organizational charts.
  • Tips for building your small business’s organizational chart.

 

What Is an Organizational Chart for Small Businesses?

An organizational chart is a diagram that shows who reports to whom and each role by title. It implies responsibilities but does not state them, leaving the viewer to use context and experience to fill in missing data.

organizational chart for small business - standard org chart example

The benefit of an organization chart is much like having a map when you’re in a foreign city. The org chart visually communicates the chain of command, what and how many departments exist, and where each person fits into the bigger picture of the company.

It’s a GPS for how to navigate the company. It’s also a fantastic reference tool for decision making, such as defining what roles are needed or can be eliminated as your company grows or pivots, like so many have done during the pandemic.

The example above shows five levels of colleagues, but a small business can have two levels, and a global conglomerate can have hundreds of levels.

 

Why Your Small Business Needs an Organizational Chart

Did you know that replacing someone costs somewhere between 50-100% of their salary? Even if you don’t hire a recruiter, the costs are the time and energy of sourcing, interviewing, hiring, onboarding, training, all the documentation, and managing someone who has no historical knowledge of the company.

why you need a small business organizational chart - cost to replace employee

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When a strong contributor leaves out of frustration, we lose their skills, knowledge, and the relationships they built. Most of all, we’ve lost an ambassador who could bring in the right talent for free.

Alternatively, when someone is not delivering, we want to have a structure that enables us to manage them in or out with integrity. In either case, losing staff can negatively affect our reputation and productivity, so we want to do all we can to avoid it. You with me?

So how do we set up our business structure to nurture booming sales and happy employees? It starts with that very intention: an organizational structure that nurtures booming sales and happy employees – reflected in an organizational chart.

If you agree that this is your goal, skip to the next section. If it isn’t, let me tell you why it should be. I once had a business owner tell me that she didn’t want to invest in her team because they kept leaving. I will share with you that I was glad she didn’t hire me as a consultant because it was clear she was committed to blaming others and not taking responsibility for her style of leadership. It was too bad because I felt she could have turned the situation around quickly if she had taken an interest in developing self-awareness.

So, I implore you to consider your role in the revolving door of your company, should that be your situation. None of us are perfect; in fact, our imperfections are what make us charming and funny and fun to work with, but only when we recognize these qualities in ourselves and own it when we mess up. Self-awareness is the most endearing quality a leader can have and it makes us incredible role models.

 

Types of Small Business Organizational Structures

There are two basic types of organizational structures: flat or hierarchical.

organizational chart for small business - flat vs hierarchical structure

Flat Organizational Structure

A flat structure relies on self-management. In a small business, it’s generally the owner with everyone reporting to that owner. This sounds egalitarian and empowering, but it often results in a few people organically acting in leadership roles with no official recognition, salary bump, or title change.

This can set in motion a chain of ego reactions from every angle. The organic leader leads without official authority because he sees the need. The people “under” the organic leader are usually grateful for the leadership and resentful at the same time.

It’s an opportunity for festering emotions that just sort of build, like a pond being overrun by weeds. After a while, you look around and see a mess without understanding what happened.

Plus, it puts all the responsibility of the team on one person, which can get overwhelming for anyone – especially small business owners.

Hierarchical Organizational Structure

This is why I believe hierarchical is the smartest, most responsible path a business owner can take, so we can create an org chart, but we must understand that it’s the culture that drives a business.

A healthy culture in a hierarchical small business organizational structure is where fear is absent and compassion and accountability are applied in equal measure creating an environment where fighting, egos, and duplication of effort are nowhere to be found. There is role clarification, job descriptions, and a hierarchy for when something goes awry.

small business organizational structure - hierarchical structure

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If Deborah has a challenge, she can go to her next level up and ask for support. If Deborah has no issues, she can go about her day doing the good work. If Deborah works in one area of the company but has an idea for another area, she can share that idea with whomever she wants across the company.

This is a successful structure built on the culture that each member of the company is valued for what they deliver in their role and for bringing their whole professional self to work.

 

How Work Culture Plays into Your Small Business Organizational Structure

There are three standard cultures that most businesses, small or large, implement. I am biased towards the third one, and you’ll see why.

1. Everyone is “hands-on!”

This is a dangerous approach that delivers duplication of effort because everyone is so busy showing that they’re hands-on that no one stops to see that they’re climbing over each other to get credit instead of focusing on doing the good work.

organizational chart for small business - problems with flat org structure

2. Strict role adherence.

I mean strict to the point where if someone is out with a broken toe, the whole company grinds to a halt. Yikes.

3. Compassion and accountability.

Many leaders don’t realize that people don’t need to be agreed with, they just want to feel seen, heard, and understood. It’s a subtle shift that changes everything. When we reply with, “That’s an interesting point. Please remind me to consider that next quarter when we’ve seen how sales are,” we are using compassion with, “I hear you” and accountability with, “remind me at this time.”

If you come from a background of fear-based leadership, accountability can trigger you into thinking the owner will shame you publicly for not doing something perfectly. That is not what accountability means in this context; remember we’re balancing it with compassion.

organizational chart for small business - compassionate leadership

Using compassion and accountability in equal measure allows for:

  • Growth: This means that the company can make more money. Cha-ching! Yes, please. It also means that each team member can learn and evolve as a person and businessperson.
  • Trust: This is when consistent information is shared across level, function, gender, generation, ethnicity, sexuality, and any other categories you can think of, and it creates an environment of trust. Trust that the important information will be shared and that not everything will be shared. Be consistent, don’t choose favorites’ and don’t leave people out because that will lead to the opposite of trust and will result in the dreaded revolving door.
  • The easeful flow of work: This is crucial to the efficiency and happiness level in a company and is based on role clarity and collaboration.

 

Small Business Organizational Chart Examples

Let’s look at an organizational chart for a small real estate business. I chose this example because it’s a combination of salaried staff members and real estate agents who are paid by commission only.

The Flat example has one owner, four direct reports, and four sales agents. Chances are the Owner is busy growing her business while she counts on the others to self-manage. It’s highly likely that the office manager will organically direct the actions of the Office Assistant, AR/AP/Payroll, aspects of Marketing, and be the liaison with the Agents who need support from the entire team.

organizational chart for small business - flat business structure

Based on my experience, this is an opportunity for “all hands-on” and resentment. This is usually when I’m brought in to help the team talk through their confidential frustrations, the lack of clarity in roles, and to streamline the workflow.

Now let’s look at the hierarchical organizational chart. This has one owner, two direct reports, one of whom manages two support staff, and the agents. Notice there are lines indicating the reporting structure. This means the Office Assistant knows her first stop is the Office Manager if she needs support.

What isn’t shown is the fact that the agents are supported directly and indirectly by everyone on staff. That’s why job descriptions and a culture of collaboration and respect are so important.

Hierarchy is valuable when used for good. Hierarchy is not good when it’s used to frighten people into submission or make people feel left out.

A delicious hierarchy does this:

  • There is a clear path for raising concerns.
  • There’s somewhere for people to grow (this is called succession planning).
  • It’s clear when to hand off the baton and to whom.

 

Building Your Small Business Organizational Chart

I recommend a hierarchical structure that clearly defines “go-to” people while also allowing for cross-level communication because it’s most likely to deliver high productivity and therefore sales.

Here are some tips to consider as your build your organizational chart for your small business:

  1. Outline each role in your organizational chart. For a plumbing business, you might have two supervisor positions that report to you with an even number of field workers under each supervisor. Determine what makes sense with your current employee roster, their skills, and the reporting structure you think will work best for your business overall.
  2. Create your org chart. You can use fancy software to build your visual chart or you can create something simple in PowerPoint.
  3. Include the relevant information in your org chart. Add employee headshots, names, and position titles to your org chart.
  4. Share your org chart with a trusted advisor. Show your small business organizational chart to a trusted leader within your business or a mentor to ensure the structure makes sense.
  5. Distribute your organizational chart to the team. Share your org chart with your employees — if any reporting structures are changing, talk with the new supervisors and the employees first. You don’t want your org chart to be the first time they’re seeing the information!

building your small business org chart

 

What to Do After You Build Your Organizational Chart

Just because your organizational chart is created doesn’t mean that’s the end of the road. Here’s what I recommend once your organizational chart is complete:

1. Model Your Ideal Employee

We leaders must model what we want to see in action from our team members. We need to show ourselves compassion and hold ourselves accountable in equal measure. This is where the rubber hits the road.

2. Pay Attention to Your Employees

Remember Joe, our owner from the beginning of this article? Let’s learn from him and pay attention to what our employees are telling us through actions and words. We must make it safe for them to tell us diplomatically and with professional vulnerability what they’re experiencing.

In the same way, we want them to be open to our feedback on their performance, we can create a safe space for them to share their thoughts and ideas. You are still the final decision maker; it’s your company after all.

3. Use Compassion & Accountability Daily

I recommend using compassion and accountability equally because running a small business can be exponentially more fun and profitable when there is a culture and structure that enables growth, transparency, and an easeful flow of information. This allows for the juicy good stuff like laughter, collegiality, creativity, and higher productivity.

how to create your organizational chart for small business - model employee behavior

 

Get Started with Your Small Business Organizational Chart

My wish for you is to thrive and have fun in your business. I hope that these words have helped you look at your business with fresh eyes and energized you to make the shifts needed to make that happen. Running a business can be overwhelming and lonely or challenging and fun. It’s up to you.

Let's get started.

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