In the United States, a variety of different regulations, as well as generally accepted accounting principles, control how a company creates its budgets and shows information. But there is a clear divide between how private companies budget their revenues and costs, and how the public sector budgets its own use of funds. This can make viewing financial records difficult when it comes to the public sector, and affects how the two sectors interact during partnerships.
Private Sector Budgeting
Private sector budgeting is well-known and frequently taught. This is the type of budgeting where costs are clearly divided into various categories, where cash flows are carefully tallied into revenues and expenditures, and where the balance sheet focuses on assets, liabilities and company equity. The common rules of private budgeting make it very easy for a company to create new budgets, plan for projects, and examine the financial information of other businesses within the industry.
Public Sector Budgeting
Public sector budgeting tends to follow different rules than private sector budgeting. Documents are often created in similar ways, but the public sector does not have the same revenue sources that the private sector does, depending instead on money derived ultimately from taxes and passed through agencies in the form of funding. As a result, public budgeting focuses more on the results of projects than their costs and values, using different metrics to judge success and feasibility.
Reasons for Differences
Private budgeting needs to be clear for transparency and analysis, as required by legislation. The scrutiny that public budgeting undergoes is different, especially in regard to end result. If the goal is to increase education levels by a certain amount, for example, it makes sense to base the budget around accomplishing that goal. Funding is then decided in order to reach that goal, not to make a certain amount of profit. The nonprofit nature of the public sector creates most of the differences between it and private budgeting.
PPPs
A public-private partnership (PPP) is where a private company works with a public company in order to complete a particular project. In this case, the budget has much in common with the private sector approach, since the private company is taking on many risks of the project and is being paid for its participation. Specific deals are worked out as to the operation of assets, loans and project assessment.
