The difference between financial management in private and public

Financial management departments

It is natural for the financial management body and specialization to differ from one institution to another, depending on the institution’s objective and the powers granted to it.
Let’s take a look at the departments of financial management and the differences between them.
Financial management has two main divisions:

1. Financial management in the public sector
2. Financial management in the private sector

It is noteworthy that these two sections are not completely separated from each other, but there is a mutual influence between them, as private financial management supports public financial management through taxes paid by the private sector and public finance provides support for private finance through what it spends on services, projects, and infrastructure. They both deal in the same financial market.

Financial management in the public sector

Its mission is to conduct studies and financial research in public sector institutions owned by the state government, such as ministries and affiliated institutions, among others.
The public financial administration follows up on the exports and imports of money by imposing control on public funds in order to analyze the financial and economic conditions.

Financial management in the private sector:

Its mission is to develop financial studies and research in private sector institutions owned by capital owners and businessmen, as examples include service and commercial companies and others.
The private financial department follows up on the financial position of the company by linking it with the budget allocated to it and seeks to evaluate the extent of success it has achieved within the competitive environment with other companies.

A comparison between financial management in the public sector and that in the private sector

Financial management in the public sector differs from that in the private sector in terms of goals and objectives. Public financial management aims first to achieve societal goals that benefit the community as a whole.
While financial management in the private sector aims to achieve the interests of the owners of the companies by achieving profits for them
This striving towards the realization of special goals leads, therefore, to achieving the signs of society indirectly, and this is represented in increasing the use of and increasing the gross national product, which the public financial administration seeks.

Points of difference between financial management in the public sector and finance in the private sector:

1. In terms of funding:
   The state collects its financial needs through direct and indirect taxes, as well as non-tax revenues such as fees and licenses, revenues from state property, state participation in projects and profits from them, and borrowing.
   As for private companies, they obtain their financing needs through the contribution of the owners of the project, in addition to borrowing, and the profits are not distributed.
2. In terms of investment:
   The decision taken by the public sector to invest or spend depends first on achieving social welfare, and profit comes second.
   Whereas, the private sector makes its decision to invest according to its expectation of obtaining an appropriate return on the invested capital and with less interest in societal goals.

Organizational structure of financial management in institutions

The organizational structure of financial management differs from one institution to another according to the difference in size in the first place, and it also varies according to the nature of the company as well.
In the following, we will learn about it through the following points:

• Financial management in small companies

The owner of a small business is primarily responsible and may be solely responsible for production, marketing, personnel affairs, and the financial function.
In the event that there are other people working with him in the field of financial management, what is usually entrusted to them is a few simple job aspects only, such as bookkeeping, managing the fund, preserving it, and collecting money, while the owner of the company reserves for himself all important decisions such as determining financial needs, financing, and investment. and distribution of profits

• Financial management in medium companies

Medium-sized companies usually have a financial management that is more independent in the exercise of its financial functions and may be headed by a person in the position of financial director who has greater powers than those that may be enjoyed by those who work in small companies with individual management.

• Financial management in large companies

Financial matters are not the responsibility of a single person in large corporations, but rather are distributed among many specialized individuals who hold advanced administrative positions.Often, the first person responsible for financial matters is at the rank of deputy general manager and is assisted by two persons: the financial manager and the financial controller. Each person’s responsibilities are established.These people usually look like this:

Deputy General Manager for Financial Affairs

The position of Deputy General Manager for Financial Affairs is appointed in large companies, so that he assumes the first role in managing everything related to the financial affairs of the company. He is also responsible for the activity of the financial controller and financial manager. This official also plays a key role in the company’s comprehensive financial planning and financial policy. Members of the management team of the company as well as a member of the board of directors who can provide technical advice in matters related to financial issues.

The board relies on the experience of this person in making special decisions regarding the percentage of profits that must be distributed, the financing required for the company’s long-term plan, and capital spending decisions.

Chief Financial Officer

The main role of the financial manager is to manage the company’s funds, secure its financing needs, and maintain financial liquidity, that is, everything related to external financial business.

• Cash management
• Is responsible for regulating the relationship with financial companies and banks.
• Securing the necessary funding for the company
• Managing the company’s debts to others
• Distributing the profit to the participants

Financial auditor

He is directly responsible for the internal financial work, i.e., the following tasks of the company’s financial management functions:
• Accounting
• Preparing the annual financial statements
• Preparation of internal flow
Payroll processing
• Preparing estimated financial statements
• Preparing tax accounts

Where is the financial department located on the company’s organizational chart?

According to the modern concept of financial management, the financial manager should be near the head of the company’s organizational structure for the following reasons:

1. The great importance given to the planning, financing, and investment processes, which are among the tasks and responsibilities of the financial manager,
2. The importance of the information provided by the financial management of the company in the decision-making process
3. The importance of financial decisions in the process of the company’s continuation and its future necessitates building decisions related to financial affairs according to accurate information.

The powers of the financial manager in the company:

Financial management has an important role in modern companies and their development. Its role is not limited to keeping records, preparing reports, processing salaries, and managing cash. Rather, it focuses on how to obtain money from various sources and use it for different types of assets in order to maximize the current value of the company.

And just as the importance of financial decisions has increased, it has become necessary for them to be taken by a source closer to the senior management, which explains why the various aspects of the financial function are carried out by the senior management of the company.

Despite that, there remains a large space for the financial manager to exercise his influence by making financial decisions, and by being an advisor to this administration, he contributes to helping it reach the optimal decision.

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