As a business owner you probably have an accountant that prepares the financial reports and files the tax returns. But if you believe your accountant handles all financial matters, you’d be mistaken.
This mistaken belief arises from a myth – the myth that accounting and finance are the same. They are not!
While accounting and finance are closely related, they have different functions. Accounting is about methodical record keeping, producing accurate financial data, and preparing tax returns. Finance, on the other hand, is about helping a business owner make sound decisions about the future of their 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 and empowering it can be.
Distinctions Between Accounting and Finance
First, let’s look at some of the important differences between accounting and finance for a business owner:
- Accounting focuses on past performance of your business. Finance focuses on future performance of your business.
- Accounting prepares the financial data. Finance uses that data in decision-making.
- Accounting is analytical and detailed-oriented. Finance is more intuitive.
- Accounting requires discipline and learning. Finance is easily accessible to a business owner with a little guidance.
- Accounting can be completely outsourced. Finance requires involvement by the business owner.
Accounting and finance are complimentary, and both are important. But they are not the same.
Why It Matters
Once your business is up and running, the rules begin to change. Past performance is no guarantee of continued success. It’s not enough just to focus on generating more revenue if you want a viable business.
Now your focus must include how to manage your revenue and strategically plan for future growth. Decisions become more financial in nature and can’t be ignored.
Have you ever thought
- Will I have enough cash in the coming months to operate the business?
- Should I get financing or use surplus cash to grow?
- How can I improve my bottom line?
- Can I withstand a setback – like losing a major client – or will I go under?
- Will this growth opportunity help or hurt my existing business?
- How can I tell if the business’s performance is on track to reach my goals?
- Should I incur a major business expense at this time?
One wrong decision can have a devastating effect on a small business. Don’t make decisions without considering the financial impact. Otherwise, it’s like shooting in the dark hoping to hit your target.
Finance in Your Business
So, what does finance look like in a small business? It’s not as complicated as you may think.
Finance is a little art and a little science. The “art” part is your business savvy, knowledge and intuition. The “science” part is understanding the financial data and risks before a decision is made. The CEO is the “art” part; the CFO is the “science” part. Together it’s a winning team.
Unfortunately, most small businesses don’t have the support of a CFO or a financial team. But that doesn’t mean business owners have to do without financial guidance.
A financial confidante can interpret the financial data and assess risks in the decision-making process. They become the “science” part of finance for you. In a small business, this is how a winning team is created.
If you’re interested in finding out how a financial confidante can help you grow your business, please click here to contact me to set up a time to talk.