When it comes to the money in your business, both accounting and financial planning are integral. What is the difference between the two, and does it really matter?
Whether you have a background in all-things financial or if bookkeeping looks like a foreign language and you “can’t math”, understanding accounting and finance doesn’t have to be difficult. Especially when someone else takes over so you can focus on other aspects of your business.
While both focus on money management, they are two completely different fields in the business sector. Yet, we’ll go over later how they work together for a streamlined business.
Here is a comprehensive guide to accounting vs. finance and how each affects your company.
According to SmartAsset, here is the essential difference in accounting versus finance:
The difference between finance and accounting is that accounting focuses on the day-to-day flow of money in and out of a company or institution, whereas finance is a broader term for the management of assets and liabilities and the planning of future growth.
One way to differentiate the two is that accounting is past transactions. Finance is future perspectives. It is easy to remember; just think of the F in finance for future. While this gives the basic premise of what makes each field unique, let’s go into more depth about each.
A Breakdown of Accounting Practices
Accounting focuses on the movement of daily money within a company. It is an accurate report of monetary transactions in the company and has a detailed perspective.
An accountant for your business must abide by the laws and practices set wherein. This includes knowing things such as accounting theory, tax law, and business law.
The Essentials of Finance Practices
With finance, there is a broader focus and that is on financial growth planning. Finance also focuses on asset and money management. The goal is to increase money and prevent losses. The person in charge of finance has a different background from accounting.
Again, both focus on money, but someone in finance has varying experience. Examples are in financial engineering, microeconomics, and macroeconomics.
How Each Affects Your Company
Now that the basics are out of the way, let’s look at how each affects your company. Should you hire an accountant or a financial planner? In some cases, a company needs both.
If you own your own business, then an accountant is crucial to helping file taxes and, as mentioned, the daily movement of money within a company.
Yet, if your company needs insight into money management, implementation of strategies, and short- and long-term financial planning, well…you can see where this is going. In this case, you need a financial planner. If money strategy is at the forefront of your business, a financial planner is essential.
If you want to have a detailed record of the company’s books, then an accountant is crucial. With that said, you may need both to ensure that your company is as compliant and successful as possible.
When to Hire an Accountant
Here’s the thing, no matter what part of the growth stage your company is in, an accountant makes life easier. Keeping up with the books and helping with legal structure are a few areas an accountant is important. Yet, there is one area where you don’t want to be without an accountant: tax time!
Whether your business is big or small, an accountant takes care of your tax woes and it’s well worth the cost. Your time is worth money. If you make $100 an hour but it is taking you 20 hours to do taxes, you see that importance. That is not even counting the stress and headache of doing your own taxes. But wait, there’s more.
An accountant isn’t what you might picture from the movies. You might imagine someone pouring over a mess of paperwork, cigarette in one hand, and using a 10-key with the other.
Instead, an accountant works in other areas to ensure your business is successful. Measuring key business metrics is another area where an accountant is beneficial. This is where the accountant breaks down areas like payroll and expenditures for a look at your company’s revenues.
According to Forbes, hiring an accountant is an excellent idea for startups:
Cash flow statements, market analysis, income projections and many other financial aspects of any business can be complex. Even if you have a lot of experience in this regard, having a second set of eyes is a great way to catch errors or find new ways to streamline your business. Any time you make a major decision regarding overhead, potential new expenditures or payroll, first make sure that the numbers add up. Take advantage of the financial expertise of your accountant. There’s nothing worse than hiring a new employee only to find out that their salary is ruining your bottom line.
Whether you need a restaurant accountant or an online retail accountant, it affects how your business runs. You have more time to devote to overseeing your company without having to worry about every detail with the books.
Why Not Both?
Hiring a financial planner makes sense when struggling with debt, or on the upside, planning investments. It is important to note that some accountants double as a financial planner. In this case, you get both fields working in tandem to help your company’s financial future.
The best companies delegate work where it is best ? and that includes accounting and finance. For a consultation, visit HonestBuck.com.