Budgets: Good or Bad?

In a small company things tend to move quicker, decisions are made on the fly, and there is often little overhead to how the company runs. Many people like that, including me, and it seems that this is a no-nonsense, very efficient way to run the business. That might be true, but I think that without some set of formal processes, it's easy for small companies to waste resource and to do the same thing over and over because they don't make things run smoother.

Personally I think a lot of how well the small business (meaning 1-20 people, founder and first employees) runs depends on the founder and leaders. If they're organized and have some experience, they can operate with very, very low overhead and be efficient. If they're not, it's easy to have things spiral out of control as people either make their own decisions, not necessarily in line with the company's goals, or they are paralyzed waiting for the founder to start them moving.

What does this have to do with budgets? I was thinking of this when I read a post by a medium sized business owner. The company had grown to about 130 people and you have to have some level of coordination at that point from various departments because you have 130 people marching somewhat in the same direction, but not with precision. Each department has slightly different agendas, and each group is trying to get funding for their particular idea.

When you're 10 people, everyone can come to the leader and ask for money, justify it, and then
move on. The leader can kind of keep a handle on what's approved and what's not, or at least where the money is going. Once you grow larger, especially when you have 30 or 40 people, it's hard to know who's spending what, or what they're spending it on.

High level budgets, at a project or department level, are good, just to keep organized and help you understand where money is going. We tend to informally budget for certain projects, which just helps each of us have an idea of how much money we'll be spending over the next xx months. We often do need to track later to see if we are spending on track, but this gives us a nice thumbnail of what revenue we need to earn.