As a business owner you probably have an accountant that prepares the financial reports and files your tax returns. But if you believe your accountant handles all the financial matters, you’d be mistaken.
Accounting and finance are not the same. They are closely related but have different functions. Accounting is about methodical record keeping, compliance with accounting principles, and preparing tax returns. Finance, on the other hand, is about achieving your vision in business.
If you’re new to business finance, or you feel overwhelmed or intimidated just thinking about it, relax. I’m going to show you how easy it can be.
Accounting vs Finance
First, let’s look at some of the distinctions between accounting and finance:
- Accounting is backwards looking. Finance is forward looking.
- Accounting records past financial data. Finance uses that financial data.
- Accounting is analytical and detailed-oriented. Finance is more insightful.
- Accounting can be outsourced to a third party. Finance is used by the decision-maker.
Accounting is the beginning. Finance is the next
Accounting and finance are complimentary. Both are important. But they are not the same.
Why It Matters
Once a business is up and running, the rules begin to change. Past performance is no guarantee of success in the future. Now decisions must be made about managing cash, improving the bottom line, planning for future growth, and increasing the value of the business.
Have you ever asked yourself:
- Will I have enough cash in the coming months to meet payroll and pay expenses?
- Can my business withstand a setback or will it go under?
- Can I afford to incur a major expense at this time?
- Will a potential grow opportunity be beneficial or detrimental to my existing business?
- Is my business on track or do I need to make adjustments to reach my financial goals?
One wrong decision can have a devastating effect on a small business. A financial perspective helps you see the whole picture and think more strategically. That’s why it’s so important and should be a priority.
And if you’re still not convinced, let me give you an often-cited statistic. More than 80% of small businesses fail. The top reasons all evolve around finance practices (poor cash flow, insufficient capital, lack of planning, lack of financial experience, poor credit arrangements).
Finance In Business
Finance is a little art and a little science. The “art” part is your business savvy, knowledge and intuition when making decisions. The “science” part is understanding the financial analysis. The CEO is the “art” part; the CFO is the “science” part. Together it’s a winning team.
Unfortunately, most businesses don’t have the resources for a CFO. But that doesn’t mean they have to do without financial expertise. There are many options and solutions that are practical and affordable for a small business. And it’s not as complicated or time-consuming as you may think.
You begin by having a financial management system in place, having access to a finance expert, and spending a few hours every month reviewing the financial side. A virtual CFO or a team member with financial experience can be the “science” part for a business owner, the CEO.
The most important thing is to implement finance practices into your business sooner rather than later. Otherwise, it’s like shooting in the dark hoping to hit your target.
If you’re interested in hearing more, please contact me at barbaravrancik.com