Building an Organizational Structure for a Small Business

Building An Organizational Structure For A Small Business

An organizational structure is not only for large companies. Even a small business can benefit from having one.

Understanding What an Organizational Structure Is

In general, an organizational structure creates the company hierarchy with the aim of increasing the effectiveness and efficiency of the business operations.

Since each small business operates differently, there is no one-size-fits-all solution when it comes to organizational structures. However, companies can determine which one will work for them by knowing the most common structures.

  • Simple – Startups that are still trying to figure out the roles of employees can choose the simple structure. This is not a formal system. It is most suitable for small businesses that have few or no employees yet. For example, if a sole proprietorship or single-member LLC relies only on one person to perform all tasks, then this structure will work.
  • Functional – If a company wants to build a hierarchy based on each employee’s job role, then it should have a functional organizational structure. That means it will have to group those who work for a common goal. It does not matter how many members there are as long as they fulfill similar and related roles. For instance, all employees who deal with the marketing needs of the company will be in the same department.
  • Divisional – Businesses that opt to decentralize the company’s structure are more likely to choose the divisional organizational structure. That is because it allows the division of employee roles based on products or regions instead of function.

For instance, a company can divide the country into north, east, west, and south divisions. Each would have employees assigned to it. With this, the company will have specialists in each region. Companies that sell various goods can also define roles based on their products. That will also be considered having a divisional organizational structure.

  • Matrix – Companies that want certain features from both the functional and divisional organizational structures may have to choose the matrix structure. Generally, this allows employees to work in teams instead of departments. It brings together those who focus on a specific project while filling different roles within the business. A common problem with this structure is that employees may be confused as to who is really in charge. That is why it may be more suitable for companies operating in different geographic regions.

How to Build a Small Business Organizational Structure

Small businesses that are thinking of building an organizational structure will have to consider various matters. But creating a solid and effective structure can help improve employee efficiency and improve productivity.

Here is a simple guide to help you get started:

Step 1: Choose the organizational structure the company needs.

The first step is to choose a specific structure. Base your decision on the needs and circumstances of your company.

Step 2: Create an organizational chart.

The next thing a company has to do is to choose the right tool to come up with an organizational chart. There are free templates available online. There are also downloadable tools such as MS Office, Pingboard, and Google Slides. Payroll and HR systems like Zenefits, SAP, and Justworks may also help. For customizable options using chart software, the company may have to pay to get them.

Some businesses include only a name and title on the chart, while others opt for more detailed content. Common inclusions are the following:

  • Employee Name
  • Department Or Team
  • Job Title
  • Location
  • Contact Information

Some software allows more information so that the organizational chart functions as an employee directory as well.

Final Thoughts

An organizational structure shows a picture of the company’s chain of command, helps employees understand the reporting relationships in the business, and promotes good communication. So whether the business entity is large or small, operating with a well-defined structure is a must. With a strategic and appropriate structure, the company can also expect efficient and effective work process flows. 

To ensure that the organizational structure serves its purpose and helps the business, a company will have to know when to review it to find out if it is still suitable for their situation. The goal is for the company to build a structure that would best support its operations.

A lot of small businesses start by structuring through trial and error and figuring out which one is the most appropriate. One good approach is to start with an assistant and figure out the roles that employees have to fill within the company. It is also possible to start with one organizational structure and transition to another as the business starts growing.