Basics for Business Owners: The Difference Between Finance and Accounting

For business owners, and especially first-time founders, understanding accounting and finance are crucial. While both disciplines obviously deal with money, they are very different — and both are necessary functions of a business.

When you're building your team, you may have misconceptions of the various roles under accounting and finance, or be unsure of where to start. In this article, we'll break down the main players in accounting and finance, and look at how these two functions work together to drive growth.

The Accounting Lineup 

Accounting is the backward-looking department, focused on recording and reporting transactions. Here are the key roles:

Bookkeepers: These are your record keepers. Their main function is to categorize transactions and reconcile bank statements at the end of each month. 

Staff Accountants, Senior Accountants, and all the others in between: There are a variety of functions that can be performed by the accounting side of the house, which can include accounts receivable, accounts payable, payroll, and clean-up work. 

Controllers: Controllers are head accountants that can often build 12-month budgets and provide basic reporting on what has happened. In large corporations, they are the executive that oversees the entire accounting function and typically reports to the CFO.

Tax Accountants: These are the people filing your business and personal tax returns. Some offer tax strategy advice for both personal and business taxes.

The Finance Lineup

Finance is the forward-looking department that develops strategic plans. Here are some key finance roles:

Financial Analysts: There are a wide range of analysts, but this is really the art of taking backward-looking data, searching for comparable data, and analyzing it to assist business owners in making informed decisions. 

CFO: A CFO is the right hand to the CEO and assists in two major areas: long-term strategy/financial planning and key decision support. A fractional CFO often does a little bit of everything and will complete projects as well as act as a strategic advisor and oversee the accounting functions of the business. 

Other Accounting And Finance Roles

Other functions that get looped in with accounting and finance are payroll, accounts receivable, and accounts payable. These are sometimes squishy terms that have a lot of overlap. As your business grows, you may end up with dedicated teams for each function. 

Another commonly confused role is the CPA or Certified Public Accountant. A CPA is a certification that accountants, including both tax accountants and bookkeepers, can obtain. It signifies a certain level of knowledge and expertise in accounting practices and principles. While it's often associated with tax accounting, there are CPAs who specialize in other areas as well, including providing CFO services. 

How Accounting And Finance Work Together

It is essential to recognize that accounting and finance are interrelated and dependent on each other. You need good record keeping to make informed decisions about your business. You need good record keeping to pay taxes. You need good record keeping to prepare your business for sale. On the flip side, business owners need someone thinking long-term and beyond the current or past state of the business. Not having a strategic finance partner can prevent you from making key decisions in your business to propel your growth. 

A business owner can review a budget and look at total spend, but a CFO will look deeper to see where dollars are being wasted. As an owner, it’s easy to feel like you have the right team in place because you’ve checked all the boxes, however a CFO can take it one step further to make sure those dollars are getting the return on investment to continue to justify that cost. 

For example, one of the areas where I often advise as a consulting CFO is with marketing spend. Marketing is incredibly important, so don’t get me wrong — you should spend money on marketing. But I have had so many clients that are spending $10,000+ per month on marketing and just not seeing a return on investment. 

As a CFO, I might also advise business owners to outsource your bookkeeping. Too often, owner-operated businesses (with $500k-$1M in revenue) are doing their own bookkeeping. Bookkeeping is simple, but it also requires knowledge that is often overlooked by business owners. The main issues are lack of consistency, incorrect balance sheets, or not reconciling bank statements. These can prevent any deep financial analysis from being completed and cost a lot of dollars down the road. 

Where to Start

For all those business owners out there looking to grow, start with getting your bookkeeping and financial team in place. Accounting will tell you how you have handled money in the past, and finance will help you handle, and make decisions about, your money in the future. As a growing business, you need both. 

The best place to start may be to hire a bookkeeper and a fractional CFO. These two roles will provide you the clean, backward-looking data you need to make informed decisions and be there by your side to provide strategic guidance and analysis along your journey.