why do companies budget for next year?

Answer 1

There are three types of Budgets. Zero based, normal and flexible budgeting. Companies do this to foresee the operations before hand and to see what cash requirements has to be met periodically during the next financial year on the forecasted sale. This comes from budgeted Accountrs receivables to overheads to Marketing budgets which ultimately ends in the Cash Master.
A budget starts with a sales forecasts, then goes into the Accounts receivables which helps in cash management cycle, then the material purchase budget which helps in knowing the purchase requirements, then into Accounts payables which helps in figuring out the cash management cycle again, then the overheads budget, marketing budget and the Cash master which helps in the Cash requirements or additional cash requirement for each month. From this Balancesheet and the Income statements and the cash flow statements are forecasted. This helps in the minimal process management which are going to be thing of the future.
A company has a life cycle just like products. So flexi budgets are created during the inception of the company, zero based during the growth and normal budgets during the maturity time frames.
From the explanation it is clearer how the budgets helps in knowing before hand the company operations and the resource allocation processes to achieve targets. This easily helps in figuring out th cash flow requirements for each months and the management can plan as to how to finace these cash requirements if they know beforehand how much cash is required additionally beyond internal accruals.

Answer 2

Budgets are like road maps that show all the directions. Companies use them to look at where they've been, where they are now and where they want to go. Each item in the budget is a road sign. As the year progresses, they look at what actually happened and compare it to the budget plan. It will tell them if they are on track or have taken a wrong turn someplace and need to make adjustments right now instead of waiting for the end of next year.

Answer 3

Only the companies that have bech marks and want to grow, they will have aleast a working budget.