Accounting vs Finance: What’s the Difference?

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Business owners need both accounting and finance to effectively run a profitable company. Many companies find that they have one or the other well in hand but are missing critical parts of a complete accounting and finance department. In this article, we outline the roles and responsibilities of accounting and finance teams, why they are both essential parts of a well-run organization, and how to evaluate whether your company has all of the necessary players in place.

A brief overview of the Accounting and Finance functions:

Accounting focuses on capturing a snapshot in time of a business’s financials. An accounting team looks back at a company’s past financial transactions to keep score (think: month-end close, historically-facing data).

Finance is focused on strategic financial decisions for the future (think: forecasting, debt-structuring, financial strategies, and analysis).

To have a complete picture of your business, you want the accounting team’s historical-facing data to support the finance team’s future-facing decisions. Let’s look at the Accounting Team first:

What are the key metrics an accounting team should provide?

Inaccurate or incomplete data leads to uninformed decisions. For a business to make intelligent choices, accurate accounting metrics must be available in a timely fashion. In addition to accuracy and timeliness, that data must be understandable.

Here are some of the key metrics every accounting team should track:

Operating cash flow:

An “at-a-glance” view of cash flow in and out of the business.

Working capital:

Accessible liquid capital vs short-term debts, operating costs, or loans.

AP (Accounts Payable/AR (Accounts Receivable):

The formal way of tracking what you are owed and what you owe.

Direct Cost & Operating Margins:

The amount of profit that is made through sales after subtracting costs of production, wages, & raw materials.

Operating Income

The sum total of a company’s profit after subtracting its regular, recurring costs and expenses.

Net Profit

Operating income minus taxes and interest.

Return on Equity

Return on Equity (ROE) is the measure of a company’s annual return (net income) divided by the value of its total shareholders’ equity, expressed as a percentage.

All of these metrics are compiled monthly into what we all know as a month-end close in which the accounting team reviews, records, and reconciles all account information.

Read: The top 5 reports every business owner should review

Understanding these documents helps you and your leadership team make strategic decisions for hiring, inventory management, cash flow, debt structure, future initiatives, and other critical business decisions.

As the CEO, you need experienced people onboard to handle both accounting (the day-to-day and historical-facing) and finance (the future-facing) functions. Without a strong, experienced team, you may find yourself wearing the CFO, controller and even the bookkeeper hat in addition to your role as leader of your organization.

What expertise do you need in your finance and accounting departments?

As the size and complexity of your business increases, the expertise and experience level of your finance team will need to keep pace. While your bookkeeper may have grown with the business, bringing in accounting roles and finance roles to support your staff can directly benefit your business.

As you audit your existing team, think of the following roles and how they can support accurate, timely and relevant financial data to drive your business forward:

Your accounting team should have a staff accountant, accounting manager, and controller. Note: the controller bridges the divide between accounting and finance departments, acting as a liaison between the accounting (historical-facing) and finance (future-acing) roles.

Your finance team should have a controller, possibly a finance manager who oversees AR/AP and Payroll, and a CFO or finance leader in that executive role of CFO.

When you think of the role of the CFO and the finance department, the larger the organization, the more important the strategic business advisory role of the CFO is.  The CFO is responsible for financial strategy, investor relations, shareholder reports, and strategic shifts made to increase profitability. As a business owner, their insights will help guide major business decisions.

How can I tell if I have the right people on my accounting and finance teams?

If your business has grown, if you find that you are not getting the insights you need to make the right decisions at the right time, you may need a more experienced accounting and finance team.

At Signature Analytics, we begin every engagement with a 30-day assessment during which we take a deep dive into a company’s people, processes, and technology.  Because we provide a flexible and scalable outsourced accounting solution, we can recommend a team that will not only provide what a business owner needs today to address issues that are pressing

Want to find out more?

Read our article “10 Tips to Help Improve Your Company’s Cash Flow” or view our guide to learn what successful businesses should expect out of their finance and accounting departments.