A Look Into the Difference Between Finance and Accounting

Accounting is one of those things small business owners know they need, but complex enough that it can get a business owner thinking they need more than their business truly requires; especially when they are in the early stages of revenue.

As an accounting firm specializing in small businesses, we see this frequently, and do our best to educate as needed. This ensures that the business receives the correct amount of support when it’s needed. It also ensures the relationship between our client and Accountfully is a positive one. Ensuring the right fit means that expectations are aligned with business goals from the beginning.

So, what is this common misunderstanding? Allow me to explain both the differences between each, and how understanding them supports a positive client-accounting firm relationship.

The Common Misunderstanding: Bookkeeper, Controller, or CFO?

The common misunderstanding that reveals itself in many potential client conversations is the difference between a bookkeeper, an accountant/controller, and a CFO/Finance and Advisory leader.

If a potential client is unsure about the difference between the two from the beginning of our discussions, it can create misalignment. This can create tension in the relationship long-term, which is the opposite of our goal.

Find the Right Fit and Grow From There

Accountfully provides the services a business needs from the earliest stages in addition to those required as they grow.

As the business needs require more specialized support, we have that support available.

In reviewing our comprehensive menu of options, sometimes a potential client can be confused by what they need from the beginning. Some may think it’s time for a CFO when all they need is accuracy and up-to-date books to have some decision-making data at the ready. Starting properly is of the utmost importance for a satisfactory business-accountant relationship long term.

The goal is to educate business owners so we can align them with what is truly needed to accomplish their goals when seeking small business accounting services. Whether that comes from our growing bank of accounting resources, our sales collateral, multiple follow-up conversations, or all of the above.

The Difference Between Finance and Accounting

A great place to start is to understand the difference between two terms that get used interchangeably; finance and accounting. For the record, they are not technically interchangeable.

The short version is that finance is forward-looking. Accounting is backward-looking.

Finance encompasses the art of planning for the future of the business. This includes cash flow planning, budgeting, forecasting, and all the “what if” scenarios.

Accounting is the studious backward-looking practices of bookkeeping, financial statement generation, KPI and trend analysis, and budget-to-actual assessment.

To have good Finance, you need good accounting. Making decisions and using historical data is a must when mapping out a realistic plan to assess and plan for future financial performance.

The Roles In Accounting and Finance

Within the confines of accounting and finance are the following roles:

• A bookkeeper is responsible for accurately recording transactions of a company, including reconciling bank and credit card statements, processing payments, and issuing invoices. This is the day-to-day responsibility of keeping the book and staying on top of all basic financial transactions.
• An accountant provides financial analysis and reporting to help businesses make informed decisions based on historical data. This involves gathering and analyzing financial data, such as income statements, balance sheets, and cash flow statements, to track the financial health of a company. By interpreting this data, accountants can identify patterns, trends, and potential areas of improvement for a business. These duties rely on the accuracy and completeness of the bookkeeper.
• A controller oversees the accounting department and is responsible for financial reporting, budgeting, and compliance. They make sure the month-end close is wrapped up properly and accurately and that all the financial information supplied by the bookkeeper and accountant is up to snuff.
• A CFO is responsible for overseeing the overall financial health and strategy of the organization. This is where the forward-looking aspect comes into play. They are responsible for looking ahead into the future of the company and advising its owners on any next steps. They will forecast outcomes based on historical financial data and advise on where to apply resources based on this information and the goals of the company.

The Bottom Line

When finding the right balance between accounting and finance, it is important to understand exactly what each entails. To ensure a long-term, successful, and positive relationship with your accounting team it is important to understand the differences and know what is needed at your stage of business. Start simply and add on services when the business need is there.