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Defining the Organisational Structure

By: Garry Pierrepont - Updated: 23 Sep 2012 | comments*Discuss
 
Organisational Structure Small Business

When you are a small business, the organisational structure can seem to be the least of your worries. However, it is important to understand and define the structure of your organisation early on so that:

  • Everyone in the business knows their role
  • Anyone reading the business plan knows who is running the business.

Businesses can be organised fundamentally as:

  • Sole trader
  • Partnership
  • Limited company.

For the purposes of this article, we shall ignore all other niceties, except for how the type of business affects the organisational structure.

Sole Trader

Fairly evidently, if you are a sole trader, then you are the business. Even if you hire professionals, such as an accountant, you are responsible for everything. This doesn’t even need to be specifically stated on the business plan, because it is self-evident.

Partnership

When a partnership is agreed, the roles of the partners should be defined. This can be as extreme as one partner being involved in the business, whereas the second partner may be a “sleeping partner”, with no involvement in the day-to-day running of the business, but who made an investment in the business. There may be more than two partners, all with equal shares. In such instances it may be sensible to give equal responsibility in the organisational structure to each partner, but you have to ask yourself the question: what is the best use of their skills?

Limited Company

A limited company is run by one or more directors. As limited companies may be set up by a single individual, rather like the sole trader, a single person limited company would mean that person does everything. However, as in the case of a partnership, if there is more than one person who owns the company, then the question is who fulfils which role, with reference to who would be suited to which job?

What are the roles in organisational structure?

Basically the key roles to be filled are:

  • Finance
  • Sales and marketing
  • Production
  • Information Technology (IT)
  • Human Resources (HR)

These can be separated (e.g. sales, marketing) or combined (e.g. Production + IT to make Technical), but these are the key roles in an organisational structure.

Looking at these roles, perhaps the HR role stands out as the least necessary in a small organisation. However, even in a two-person organisation there are matters to be dealt with: salary, dividends, use of external contractors for different roles.

In a limited company these roles would suffixed with director; e.g. Finance director, Sales and marketing director, etc. Above all these, but probably fulfilling one or more director role in the organisational structure, is the Managing Director. Managing directors may also be called Chief Executive or Chief Executive Officer (the latter terms are more common at public limited companies).

The Managing Director’s role is to develop and implement the strategic plan for the company. This includes the day-to-day running of the company and the business plan for the long-term well-being of the business. The MD and the rest of the directors make up the Board of Directors. The MD is accountable to the Board and the company shareholders.

The proposed organisational structure of the Board should be explained in the business plan. This is especially important for a new small business, where the people who are going to run the company will be of great interest to prospective investors.

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