What Shape Is Your ORG Chart

If you expect to sell your business one day, the shape of your ORG chart will matter.  The wrong shape is not salable at all.

In classic organizational theory an organization chart shows how different functional positions relate to one another and how they communicate.  It is a simple way to describe how the business allocates decision-making, responsibility, and authority.

Many are hierarchical. Think of the Catholic Church or the army. It is like a pyramid. As you go up, there is more authority and responsibility.  At the top, the decisions become strategic.  The mid-level will be working on tactics or methods of implementing the strategy while everyone else will be responsible for refining the methods of implementing and the doing of day-to-day deeds.

Sometimes an entity, (more likely part of it) can have a matrix form. In these, skilled people report to their pool manager but also to others who are in charge of a particular project.  Software engineers frequently work in this form

Lastly, there is the flat organization, where all the people are closely involved in decision making.  It works when the communication network allows it, but this form tends to go away as the entity grows.  It becomes too difficult to see the overall picture from every position within the organization.

Many family-owned businesses have another structure. If you draw it out, it looks like a garden rake.  Which of these more closely resembles your business structure?

In your business is there one person who:

  • Knows the goals of the business
  • Knows all of the important information
  • Makes most of the decisions, (important or otherwise)
  • Provides leadership
  • Controls customer, employee and supplier relationships
  • Provides financing or guarantees support for loans
  • Makes all personnel decisions
  • Is the only one who receives reports

If yes, that person is like the handle of the rake.

Notice that removing that person will have the same effect on the business as removing the handle would have on the rake. Make it useless or at best ridiculously inefficient.

You cannot sell a business with no middle management for anything close to real value.  Only someone with enough money and the know-how to run the business could buy it.  And anyone with that much know-how and money is too smart to pay full price.

If you want to sell some day, build middle management and insure your life and health against the possibility that the handle could fall out prematurely.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario. don.s@protectorsgroup.com


2 Comments on “What Shape Is Your ORG Chart

  1. Pingback: Is Your Business Priceless? | moneyFYI

  2. Pingback: How Much Is Your Business Worth? | moneyFYI

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