Planning
The business will have it's long term plans in place, the annual budget breaks these plans down further into operational plans which concern the day to day running of the business. Managers will be required to plan operations taking into account factors both internal and external which may impact on the business and how the business will respond to these factors.
Communication
A business needs clear lines of communication, everyone needs to know what is expected of them and the part they play in achieving the annual budget. The budget is the process were senior management communicates it's expectations to managers so that everyone has a clear understanding of what needs to be achieved.
Coordination
The budget brings together all aspects of the business to ensure they are working towards an agreed plan, if no budget were in place managers could be working hard but towards different objectives which could be wasting money and effort.
Motivation
If managers are involved in producing the budget rather than having it imposed on them then they will be motivated to achieve the budget.
Evaluation
A managers performance could be partly evaluated by measuring their actual performance against budget, this is only feasible if the manager had been involved in setting the budget.
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