Importance of Budgets in Business

This essay discusses the critical role of budgeting in a company's success. It highlights that a budget is a crucial financial plan that helps companies determine if they have enough resources to achieve their goals. The essay emphasizes the coordination of activities between departments and alignment with strategic plans that effective budgets facilitate. It also points out the challenges in creating effective budgets, which go beyond simple number crunching. The essay uses Apple Inc. as a case study, explaining the importance of both operating and financial budgets for a company in the unpredictable information technology industry. The essay concludes that flexible budgets are more suitable for companies like Apple, where product demand is uncertain.

Important of Budgets to a Company:
Budgeting is the process of creating a plan to spend the money in the business. This spending
plan is called a budget. Creating this spending plan determine in advance whether the company
will have enough money to do the things company need to do or would like to do. Without a
budget, a company is literally shooting in the dark when it comes to trying to create action plans
for a company. The budgets of a company must able to identify currently available capital,
estimates expenditures and anticipates revenues.
There are many benefits derived from budgets for an organization whether it is profit oriented or
not. It formalizes the coordination of activities between departments while aligning these
activities to the company’s strategic plan. It provides a plan for decision-making responsibilities
and enhances management’s responsibility. Creating an effective budget can be a challenging
task. It is much more than the crunching a bunch of numbers and throwing it out to the team.
Apple Inc.
Apple was founded by Steve Jobs, Steve Wozniak, and Ronald Wayne in April 1976 to develop
and sell the personal computers in the U.S. It was incorporated as Apple Computer, Inc. in
January 1977. Apple became the first U.S. company to be valued at over US$700 billion in
February 2015.
An operating budget is a combination of expected future costs and forecasted income over the
course of a year. The financial budget includes budgeted balance sheet, which shows the effects
of planned operations and capital investments on assets, liabilities, and equities. A financial
budget also includes a cash budget, which forecasts the flow of cash and other funds in the
business. Both the financial and operating budgets are equally important for the Apple Inc. The
Apple Inc. is in the industry of information technology where demand for a product is uncertain
so the flexible budgets are more convenient than static budgets for them.