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How to Create an Organizational Structure? (A Complete Guide)

Ultimate Guide On Writing A Business Plan

• Vinay Kevadia
• October 21, 2024

Think of your organizational structure as the game plan for your business team. Without it, it’s like sending your best players onto the field with no clue who’s passing, who’s shooting, or who’s even holding the ball!

A well-thought-out structure lays out how goals are set, decisions are made, and tasks are delegated—kind of like deciding who plays defense and who’s the star forward.

Ready to draft your winning lineup?

This guide will coach you through how to create an organizational structure for your business, the importance of having one, and the different types of structure there are.

What is an organizational structure?

An organizational structure is the way your company or organization is set up such as the hierarchy and levels of management. It explains in detail your company’s workflow, policies,  and team responsibilities to direct specific processes that achieve company goals.

As a result, it works as a:

• Day-to-day guide overseeing employee tasks, interactions, and reporting.
• Simple means for employees to understand where or to whom they need to go to report or ask for help.

Here’s a simple organizational structure:

The importance of having a clear organizational structure

But do you really need an organizational structure? The following points will answer your question:

1. Clear communication

When everyone is clear about each other’s positions and the line of command, communication is made simple and clear.

Everyone knows who:

• Their teammates are
• To go to, to ask for help
• To report to
• To expect work from
• To assign tasks to (for managers and leaders)

2. Clear responsibilities and hierarchy

“Hold yourselves accountable before you are held accountable.” – Umar ibn al–Khattab. A clear organizational structure helps prevent exactly that as it offers:

• A clear visual of reporting relationships
• And responsibilities in an organization.

As a result, if a deadline zooms by or a task is left incomplete, managers can quickly check the organizational structure and go “Aha!” once they find the accountable party.

Organizational structures also clearly state the hierarchy as to who reports to whom, and the scope of authority. This prevents confusion over authority as well as “too many cooks in the kitchen” scenarios.

3. Company’s growth support

Growing companies often fall prey to understaffing and overworked employee situations because of too many moving parts. But this can be avoided with an organizational structure as they can evolve with the growing company.

Managers and leads can look at the structural chart to assess areas that need more human resources or specialized experts. They can also assess if adding a middle management or reorganizing departments can help balance the workload.

4. Better planning

A clear organizational structure makes the planning of projects effective. How?

• Teams can better distribute workload thanks to a clear view availability of human resources as well as their defined roles, responsibilities, and reporting lines.
• The chain of command makes it easy to assign and oversee tasks and activities.
• By visualizing the volume of human resources available for each activity, project managers can create a calculated, accurate project schedule.

How to create an organizational structure for your business?

Ready to get organized? Here’s a simple quick guide to creating an effective organizational structure.

Step 1: Departmentalize

What kinds of departments does your company intend to have or has? Marketing? Sales? Finance? IT? List them out and organize the roles and positions within your business under each of these departments.

Step 2: Develop a chain of command

With departments set, decide who will report to whom and how under each of them. Basically, a game of hierarchy. This ensures that the instructions and decisions flow properly and outlines the expectations for staff, management, and executives.

Step 3: Choose your organizational structure type

Choosing the right organizational structure depends on your business’s size, goals, and culture.

( More on the different structure types later )

Start by assessing your business size : Smaller companies often thrive with a simple, flat structure, fostering open communication and fast decision-making.

Whereas larger businesses work well in a hierarchical structure, where it might provide the necessary clarity in roles and responsibilities.

Then consider your goals and strategy .

Do you need flexibility and innovation? A matrix structure may work well.

Is your industry highly regulated? A functional or divisional structure can bring stability.

Lastly, think about your company culture since what works for one company might not work for yours. If you’re all about collaboration and creativity, a more fluid structure would do wonders. But if you like tight ropes and clear leadership, a more rigid structure might be best.

Balancing these factors will help you choose the most effective structure for your business.

Step 4: Determine the span of control and delegate work

Decide which leader, manager, or team member will be responsible for how many members or departments.

Then decide what expertise each department will work on so work expectations for employees are clear. This ensures that all employees are responsible and sure of their specific duties based on their level of experience and skills.

Step 5: Visualize your structure

Lastly, create a flowchart to illustrate the organizational structure you’ve planned. The visuals will ensure easy and quick understanding for all employees as to what’s expected of them to further your business’ growth and development.

Benefits of an effective organization structure for business

Here are three major benefits you’ll reap with an organizational structure in place:

1. Conflicts between individuals over authority are low

Since everyone knows their authority and place in the hierarchy, there’s a sense of responsibility instilled. As a result, no one is busy figuring out authority or reporting procedures, instead, they’re busy accomplishing assigned tasks. In fact, the work interdependency of that particular task is diminished.

2. Eliminates work duplication

When responsibilities and duties are clear as day, it reduces the risk of multiple people unknowingly working on the same thing.

3. Decreases runarounds

When teams don’t know who’s responsible for what and are sent to the wrong people for help or reporting, runarounds happen. But with a structured organization, clarity of responsibility prevents it.

4 types of organizational structures

There are four key types of organizational structures:

1. Functional structure

The most common organizational structure there is: A functional structure, which starts with positions with the highest levels of responsibility at the top and goes down from there.

It also departmentalized the organization based on employees’ job roles. For instance, there will be departments like marketing, social media, sales, finance, HR, and customer service.

2. Divisional structure

This structure consists of several smaller divisions or functional structures that perform a specific set of business operations. These divisions are based on geographic area, process, and market, where each unit works as a semi-autonomous entity.

3. Matrix structure

This one is a nontraditional organizational structure. Meaning it doesn’t follow a typical reporting hierarchy that a functional or divisional structure does.

Instead, employees report to multiple managers: typically, one for their functional area (like marketing or finance) and another for specific projects or product lines.

As a result, this structure promotes collaboration across departments, allowing for more flexible resource allocation and improved communication.

4. Flat organizational structures

Flat or organic, organizational structures can limit the level of formal management within an organization.

That’s because it has few or no levels of middle manage ment between employees and leadership. It encourages open communication, faster decision-making, and greater employee autonomy, as team members have more direct access to top executives.

I hope this blog was helpful in ways you expected it to be and start creating your organizational structure today.

But there’s no pressure if you still have some reservations about the process. Just rely on Upmetrics . It can create engaging business plans that consist of clear organizational structures.

All you need to do is enter some details regarding your business including your team members and their designations to start building a suitable organizational structure and business plan!

What’s the wait? Start structuring today!

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

What are the main types of organizational structures.

The main types of organizational structures include:

• Functional structure: It departmentalizes an organization based on common job roles.
• Divisional structure: It consists of several smaller functional structures that work together to perform essential business operations.
• Matrix structure: A nontraditional organizational structure all teams and staff members have multiple reporting relationships.
• Flat or organic structure: It limits the level of formal management allowing all employees to perform in leadership roles.

What is an example of a simple organizational structure?

A simple organizational structure is the most basic setup of a company, typically flat, with few levels of hierarchy. You’ll find it in small businesses or startups. Here’s an example:

Owner/CEO > Department heads > Managers > Associates

What is the difference between a flat and a hierarchical structure?

A flat structure has a shorter chain of command. For example, CEO/founder > team leads or department heads > employees.

On the flip side, a hierarchical structure has many layers, creating a longer chain of command. For example, CEO > senior executives (C-Suite: CFO, COO, CMO, etc.) > department heads (e.g., VP of marketing, VP of sales) > managers > team leads > employees.

Can a small business benefit from having a formal organizational structure?

Yes, a small business can benefit from having a formal organizational structure as it improves:

• Efficiency: Separating employees and functions into different departments helps a business perform multiple operations simultaneously.
• Clarity: Help employees understand their roles and responsibilities as well as a chain of command, leading to faster and more efficient work.
• Accountability: It can increase transparency and, as a result, accountability among employees.
• Communication: Improves communication and collaboration between team members.
• Decision-making: Improves decision-making processes.
• Growth: A clear structure may increase the chance of a company growing.

How to create an organizational structure for a small business?

Here’s a simple game plan to create an organizational structure for a small business:

• Identify key functions: Positions and job roles your business needs—sales, marketing, operations, customer service.
• Assign roles and responsibilities: Decide who will handle what function.
• Create a chain of command: Determine who’s in charge of what and who reports to whom.

That’s about it. Share it with your company members and regularly evaluate the effectiveness of the formal organizational structure and make necessary adjustments based on company and market changes.

About the Author

Vinay Kevadiya

Vinay Kevadiya is the founder and CEO of Upmetrics, the #1 business planning software. His ultimate goal with Upmetrics is to revolutionize how entrepreneurs create, manage, and execute their business plans. He enjoys sharing his insights on business planning and other relevant topics through his articles and blog posts. Read more

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Business Plan Organization and Management: How to Write Guide .

Sep 17, 2023 | Business Consulting , Business Plan , Organization and Management , Organizational Development , Strategy

Writing the Business Plan Organization and Management Section

It provides critical information for those looking for evidence that your staff has the necessary experience, skills, and pedigree to realize the objectives detailed in the rest of your business plan.

What Is the Organization and Management Section in a Business Plan?

The organization and management section of your business plan should provide details about your business structure and team. This section typically comes after the executive summary. However, some people have it further in the document after the market analysis section.

This section generally is separated into two parts. The first concerns the organization as a whole. It gives readers an overview of the company structure, which is an excellent opportunity for the reader to lift the roof off your office and peer into its inner workings. For your legal design, you may set up as a limited liability company (LLC) or nonprofit/ charity or form a partnership. It’s crucial to include this section. However, suppose you’re starting a home business or have an already operating business where you’re the only person involved. In that case, you can skip this section or show the company registration details from either the company’s house or the awarding .gov.

The second part focuses specifically on your management team and introduces readers to each member — your chance to impress them with the many accomplishments pinned to your organization’s management team.

This section may seem less important than some of the other parts of your business plan, but the truth is that your people are your business. If they’re highly competent and accomplished, the implication is that so is your business.

Of course, if you’re a sole proprietor with no management structure or any employees, this section is unnecessary other than to talk about yourself and your achievements.

The section on organization and management should outline the hierarchy, individual roles, and corresponding responsibilities. It should also highlight each person’s strengths and qualifications for their positions.

Business Plan Organization Section

The organizational section of your business plan outlines the hierarchy of individuals involved in your business, typically in a chart format. This section identifies the President or CEO, CFO, Director of Marketing, and other roles for partnerships or multi-member LLCs. If you’re a single-person home business, this section is straightforward as you are the only person on the chart.

Although this section primarily focuses on owner members, you can include outsourced workers or virtual assistants if you plan to hire them. For example, you may have a freelance web admin, marketing assistant, or copywriter. You may even have a virtual assistant who coordinates with your other freelancers. While these individuals are not owners, they hold significant responsibilities in your business.

There are various business structures, such as sole proprietorships, partnerships, LLCs, and corporations.

Detail the Legal Structure within the Business Plan Organization and Management Section

Here is an indicative list of business structures. It would help if you talked to your accountant and legal advisors to determine which legal form is the best for your business proposition.

Sole Proprietorship

When embarking on a business venture, it’s essential to consider the various structures available. A sole proprietorship is a structure whereby the business is not regarded as separate from its owner’s finances. The owner retains complete control and responsibility for the company. However, they are unable to sell stocks or bring in new owners. The business becomes a sole proprietorship if not registered under any other structure.

Partnership

When forming a partnership, it can either be a limited partnership (LP) or a limited liability partnership (LLP). One partner assumes most liability in a limited partnership (LP). In contrast, the other partners have limited liability and control over the business. Alternatively, in a limited liability partnership (LLP), all partners have limited liability from debts and actions of other partners, and there is no general partner.

Limited Liability Company

A limited company (LTD) or limited liability company (LLC) is a mixture of business structures that mixes aspects of partnerships and corporations. It offers limited personal liability to the owner and passes profits through to their tax returns.

Corporation

There are various types of corporate structures. A C-corporation enables the issuance of stock shares, pays corporate taxes instead of personal returns, and provides the highest level of personal protection from business activities. On the other hand, nonprofit corporations are similar to C corporations. However, they do not aim to make profits and are exempt from state or federal income taxes.

More information on company legal structures is available on UK.Gov and USA.SBA websites.

Describe Your Company’s Organizational Structure

This first step illustrates the positions in your organization’s employee hierarchy and how they all relate to each other.

This is usually done graphically as a guide, using an organizational chart, or “org chart” for short. People use a Microsoft tool, i.e., PowerPoint or Excel, to help.

Organization Charts typically follow a top-down hierarchy, starting with your CEO/ Managing Director in the top box at the top of the page. Lines extend down from that person’s name to boxes containing the terms of the CEO’s direct reports.

We have included an example organizational chart below for guidelines only.

Identify your business organization structure and list your team members’ strengths and skills.

Those managers then have lines extending to those who report to them, and so on, down to your lowest staff positions.

This section will give your readers a quick understanding of your management and governance structure, the size of your organization, and your lines of control and communication.

Describe your Team in your Business Plan Organization and Management Section

In your business plan’s Organization and Management section, please provide a detailed description of your team. Y ou will discuss the company’s management team, starting with the owners.

This section highlights who is involved in the running of your business and who are the support professionals. It also includes the roles and responsibilities of managers.

Suppose the company structure is a multi-owner arrangement or some other multi-owner arrangement. In that case, you’ll want to include information for every member and their percentage of ownership and ongoing involvement in the company.

It’s important to discuss how ownership interests are split, their responsibilities, what they did before securing their current position, and how they came to be involved with the company.

Here, it would help if you talked about some of your critical team members. These people are directly responsible for large portions of your business operations.

Owner/Manager/Members

Within your business o rganization and management section, y ou should introduce the team and talk about their experience, qualifications, previous companies and achievements, role in the company, and any special skills they bring with them. Please provide the following details for each owner, manager, or member of the business within your business plan:

• Percentage of ownership (if applicable)
• Level of involvement (active or silent partner)
• Type of ownership (e.g., stock options, general partner)
• Position in the company (CEO, CFO, etc.)
• Responsibilities and Duties
• Educational background
• Relevant experience and skills
• Previous employment history
• Skills that will benefit the business
• Awards or recognition received
• Compensation structure
• How each individual’s skills and experience will complement and contribute to the business’s success

Perhaps they’re an entrepreneur, business coach, exclusive advisor, or industry specialist to help you grow.

This is an ideal opportunity for companies with an Executive Board of Directors, Governance Structure, or Advisory Board to introduce them to your readers.

Executive Board

Having a board of directors is essential for your management team. Without one, you may be missing out on crucial information. This section includes details similar to those found in the ownership and management team sub-section, such as the names, areas of expertise, positions (if applicable), and involvement with the company of each board member.

Strategic Advisors

Suppose you’re looking for funding for your business or to fill a gap in your knowledge, or you may not have the funds to hire an executive board. In that case, you must inform potential partners and investors that you have a team of professionals assisting you. This includes lawyers, accountants, and any freelancers or contractors you may be working with. When listing these individuals, include their name, title, educational background, certifications, services they provide to your business, and their relationship with you (i.e., hourly rates, projects, retainer, as-needed, regular). Additionally, highlight their skills and experience that make them an asset to your team you need

Does anything else make them stand out as quality professionals (awards, past working with credible brands)?

Spotlight on the Wider Team Structure

Now, you’ve showcased the management team in its entirety. You can provide brief bios for hiring team needs or secondary members and talk at length about how the team’s combined skills complement each other and how they amplify the team’s effectiveness.

It’s also important to point out any gaps in the knowledge your team is currently suffering. Your readers will likely be savvy enough to pick up on existing holes.

Therefore, you’ll want to get ahead of these criticisms and demonstrate that you’re already aware of the positions and complementary skill sets your management team still requires and how you plan to address the knowledge gaps with future hires.

Do you need help writing your business plan o rganization and management section ? 

Every successful business plan should include the organization and management section, helping you communicate your legal structure and team.

Writing a business plan can seem overwhelming, especially when starting a small, one-person business. However, it can be a reasonably simple task. This section of the plan should be updated if there are any changes to the organization structure or team members, such as additional training, awards, or other resume changes that benefit the business.

Creating your comprehensive business plan takes planning, research, time, and a herculean effort. If, at any point, the work becomes too much to handle, we can step in to assist.

Do you want an expert “second opinion” before creating your business plan or financial forecasts? Let’s talk !

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