I thought my accountant would help me understand my numbers… But he doesn’t. He says that’s “finance.” What’s the difference? It’s all numbers…
There is a BIG difference between accounting and finance. Accountants are responsible for your transactions. They must record your revenues and expenses according to accounting rules – GAAP (generally accepted accounting practices).
BUT this does not help you manage your company – that’s “finance”– the tools you need to analyze your numbers. You must have good accounting to draw financial conclusions. Therefore, BOTH are necessary to run your company profitably.
Here are 5 key differences:
- Scope. Accounting deals with recording financial transactions, while finance deals with the management of assets and liabilities, analysis, and decision-making around the numbers.
- Goals. Accounting’s goal is to ensure accurate financial reporting, while finance’s goal is to maximize the company’s value and assets.
- Time frame. Accounting focuses on the past and present transactions, while finance focuses on planning for the future.
- Responsibilities. Accounting is responsible for the day-to-day financial reporting activities, while finance is responsible for the company’s long-term strategies.
- Tools. Accounting uses tools such as general ledgers and builds the financial statements, while finance builds on these statements and uses tools such as financial models, projections, ratios, and valuation techniques to analyze and evaluate future business decisions and risk profiles.
All business owners must find a good bookkeeper and/or accounting system to accurately report revenues and expenses for their company and the IRS. This is standard operating practice. However, few business owners understand finance – which is not surprising as there are very few places to learn this valuable skill.
It’s what we teach at BOMBA. Reach out to me if you’re interested in learning more!
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