Org charts for business owners
The business world is brimming with a plethora of terms, jargons, and documents. For SMB (Small and Medium-sized Business) owners, navigating this maze can sometimes be daunting. One term that often pops up, especially during financing activities, is the "org chart". Let's demystify it.
What is an org chart
The term "org chart" is short for 'organizational chart', but when lenders mention it, they're specifically referring to an 'ownership organizational chart'.
This chart displays the ownership structure of a company or a cluster of affiliated companies. It generally incorporates:
- Names of individuals or entities owning shares in the company.
- Their ownership percentages.
- Their relationship to other companies (potentially related to the borrower).
The org chart is a powerful visual aid. It simplifies understanding the dynamics of control, decision-making power, and voting rights distribution within a business entity.
Why does the org chart matter
Lending decisions: If you're in the process of securing a loan for your SMB, don’t be surprised if a lender requests an org chart. It offers them insights into the ownership composition of your business, aiding in risk assessment and potential conflict of interest among shareholders.
Authorization and decision-making: Through this chart, lenders can discern who has the decision-making power, ensuring the person borrowing is authorized to do so.
Compliance and security: In an era where business transparency is paramount, org charts can satisfy certain regulatory and legal compliance. It provides lenders clarity on their business counterpart, mitigating risks such as money laundering or fraud.
Crafting your org chart
Data compilation: Begin with gathering pivotal information. List down all shareholders, stakeholders, their ownership ratios, and any affiliations or positions within the organization.
Choosing your tool: Several digital tools like Microsoft Visio, Lucidchart, or SmartDraw make creating org charts a breeze. Opt for one that best aligns with your comfort and needs.
Chart designing: Initiate by placing the top-tier management and cascade downwards. Connect individuals with lines indicating hierarchy and employ different shapes or icons for various roles or departments.
Format and refine: Prioritize clarity and simplicity. Ensure the chart is organized, legible, and coherent.
Review: Before finalizing, double-check for any inaccuracies. Ensure the structure mirrors your company's present ownership layout.
Pro tip: Given the legal and financial implications, consider seeking expertise. Engaging a lawyer or accountant, especially for complex structures, can ensure that the chart is not only precise but also in line with legal norms.
Wrapping up
For SMB owners in Canada and the US, understanding the nitty-gritty of org charts can make the financing journey smoother. It's more than just a chart; it's a testament to your company's ownership structure, facilitating trust and transparency with lenders. Equip yourself with a well-crafted org chart and stride confidently into your next business venture.