Public and Private Sector Enterprises-Free-Samples-Myassignment

Question: Discuss the differences in Financial Objectives that you are likely to face, and the changes in your strategic and Operations Decisions as a Financial Manager. Answer: Introduction The public sector entities are nowadays emphasizing on undergoing privatization with the growing importance of private sector in the economy. However, the public sector entities have to undertake major transformation in their ownership structure to become a private entity due to large differences between their objectives and mission (Preker, 2007). In this context, the present report aims to demonstrate the changes to be incurred in a state owned enterprise to private enterprise that is to be listed on the stock exchange from the perspectives of a financial manager. In this context, the reports discuss the differences in the financial objectives and the strategic and operations changes that the enterprise will face as a result of entering into the private sector. Ownership Changes in the State-owned Enterprise to enter into Private Sector The business entities operating in the private and public sector have varying goals and objectives due to large difference between their operational activities. The public-sector enterprises are under the government control whereas private sector is owned by private companies. The public and private sector entities have different stakeholder groups as public sector have the objective of satisfying the bureaucrats and politicians whereas private entities have to achieve customer satisfaction (Obadan, 2008). As such, the public-sector enterprise for becoming private has to implement major changes in their ownership structure as follows: Differences in financial objectives of State-Owned Enterprise Likely to be faced The financial management in the public and private sector has large differences due to changes in their nature of operations. The varying methods of accounting used in both the types of enterprises results in the wide difference between their financial objectives. The private sector enterprises incorporate the use of GAAP (Generally Accepted Accounting Principles) for developing their general purpose accounts. As such, the privet sector enterprises uses the accounting practices such as double-entry and accrual accounting practices as per the GAAP principles for ensuring financial integrity. On the contrary, the public-sector financial managers are not bound to use the GAAP principles for developing their financial statements. They carry out their bookkeeping and accounting activities as per the government laws and regulations. The financial activities of the state-owned enterprises are carried out as per the control of the legislative bodies. In addition to this, there is also large difference between the auditing practices of both the firms. The public sector enterprises are audited by the government officials where private entities auditing is done by the accounting professionals (Preker, 2007). The financial managers of the private sector enterprises have the aim of profit maximization for driving the financial growth of the company. On the other hand, the financial manager of the public-sector enterprises does not work under the motivation of maximizing the firm profitability as the government enterprises are not profit-driven. Therefore, the financial manager of the public-sector enterprises is task-oriented and works under the motivation that is intrinsic to the specific work activities. This also results in the fundamental difference between the levels of autonomy of the financial manager of both the types of enterprises. The private sector enterprises have higher level of autonomy as they possess the authority to take financial decisions that maximizes the profitability level of the entity. However, in the case of private-sector enterprises the financial managers have to face various legislative and regulator constraints and thus do not have autonomy over their decisio ns. The operational activities of the public-scetor enterprises are completely under the control of the government and this restricts the financial managers of such enterprises to act independently (Megginson, 2005). In addition to this, there are also significant differences between the budgeting activities of both the public and private sector enterprises. The public sector prepares budget to match the expenditures incurred on particular asset and services with the income realized form public in the form of taxes and fees. This in turn supports the decisions of the government officials regarding increase or decrease of taxes. However, in the private sector, the budgets are prepared for analyzing the present and future operating profitability (Andrews, 2005). Thus, it can be said that the state-owned enterprises under the context for undergoing private has to completely transform its financial procedures and actions for achieving congruence with the financial objectives of the private business entities (Lewandowski and Barbara, 2017). Changes in strategic and operations decisions as a financial manager The financial manager have to also face changes in the strategic and operational decisions of the enterprise for undergoing transformation as a private entity from being public. The financial manager in the private sector enterprises holds the responsibility of maintaining adequate cash so that it can meet its present and future operational requirements. However, in the public-sector entities, the financial manager does not have the autonomy to take decisions for maintaining the operational budgets and it is completely controlled by the government. The financial manger of the private enterprises develops and implements strategies related to improving the financial growth and development (Claessens and Laeven, 2006). This can include the tactics developed for reducing the operating expenses and increasing the income generation. Also, the financial manager develops and adopts the use of several forecasting techniques for estimating the future requirements of the cash of the business en tity. On the contrary, the public-sector enterprises financial manager only emphasize on carrying out their job activities and does not have the authority to develop and implement operational strategies. This is due to the fact that public enterprises operates only aims to serve the interest of the taxpayers and therefore its financial growth strategies are not developed by the financial manager. Therefore, it can be said that the respective state-owned enterprise have to implement major changes in its strategic and operational activities for adopting private-owned business structure (Obadan, 2008). Conclusion Thus, it can be said from the overall discussion held in the report that public and private sector enterprises have different business structure. This is because the both the type of enterprises have different ownership structure. The public sector enterprises are controlled by the government whereas private are not the part of government and operates for the sake of profit earning. Thus, for a state-owned enterprise for becoming private listed company has to completely change its ownership structure to change is mission and goals. References Andrews, M. 2005. State-Owned Banks, Stability, Privatization, and Growth: Practical Policy Decisions in a World Without Empirical Proof. International Monetary Fund. Claessens, S. and Laeven, L. 2006. A Reader in International Corporate Finance. World Bank Publications. Lewandowski, Barbara, M. 2017. Public Sector Entrepreneurship and the Integration of Innovative Business Models. IGI Global. Megginson, W. 2005. The Financial Economics of Privatization. Oxford University Press. Obadan, M.I. 2008. Economic and Social Impact of Privatisation of State-owned Enterprises in Africa. African Books Collective. Preker, A. 2007. Public Ends, Private Means: Strategic Purchasing of Health Services. World Bank Publications.