What Is Private Budgeting?

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Private budgeting refers to the practices and principles businesses in the private sector employ to create budgets and allocate resources. While private sector budgets are subject to the same considerations as budgets issued by public entities such as government agencies, the decision-making processes and transparency of private sector budgets are different.

Private Budgets

The decision-making process for private budgets typically falls under the authority of a comparatively small group of people, such as CEOs, CFOs and a budget panel. Each department or unit submits a budget proposal that details expected financial needs and wants. The final decision for budgets in the private sector typically stems from a pure financial perspective. A department that shows poor or diminishing returns on investment can expect to see budget cuts, while profitable departments often get most or all of their requested budgets. In contrast, public budgets represent something of a tug-of-war between hundreds or thousands of people. Each person advocates for her constituency or agency, which often results in politically motivated compromise budgets rather than financial performance-driven budgets.

Transparency

Private sector budgets enjoy a low level of transparency. Although publicly traded companies must disclose certain financial information to the Securities and Exchange Commission and shareholders -- such as balance sheets, income statements and cash flow charts -- they do not need to provide a detailed budget. Privately held companies face even less scrutiny and often withhold all financial information from the public. Public budgets are made available to everyone, with certain concessions to national security.

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