Finance vs. Accounting

Author: Larry Chester, President

The terms “finance” and “accounting” are often used interchangeably. There are, however, very real differences between finance and accounting. While many business owners look for a CFO to bolster their existing accounting team, here at CFO Simplified, we consider that a CFO would be categorized squarely in the finance category.

How to Define Finance vs. Accounting

Finance is categorized as strategic while accounting is much more tactical. Having finance without accounting is like having an engine without a transmission, each is essential for the other to perform its job. 

Many smaller companies do not have access to the strategic elements of finance and rely on their accounting departments to provide insights into the company’s fiscal health. While we know from experience that this is often a function of budgetary constraints, we also know that with the insights of a CFO, the accounting department can level up their contribution to the company.

Sometimes the differences are misunderstood because the CFO works with both the Accounting and Finance departments. Although the CFO oversees both departments, different responsibilities and results are expected for accounting vs. finance. 

Let’s define each of the terms.

What is Finance?

Finance focuses primarily on the management of assets, liabilities, and strategic growth planning. A team member in the finance department addresses how a business manages their money, from:

• Investing and borrowing
• Budgeting
• Cash flow forecasting
• Growth planning 

CFOs are part of the company’s internal finance team just as bankers, and CPAs, are part of the company’s external finance team.

For any company, the CFO is responsible for Financial Analysis, Strategic Planning, Cash Flow Forecasting and Planning, Financial Modeling, Budgeting, Internal Controls, and the supervision within a company, in addition to compliance with employment practices, sales tax regulations, insurance requirements, and specific industry rules and regulations.

 In publicly traded companies, the CFO is also responsible for the company’s compliance with Securities and Exchange Commission (SEC) rules and regulations.

A seasoned CFO will address how well a business earns and spends its cash.  

The CFO’s time is primarily spent with analytics, diving into the “whys” of the numbers, the direction of the company’s performance, the factors that bring improvement, and what that improvement could look like. Plus, what needs to be done operationally to get that improvement.  A company’s financial performance only gets better by making operational changes to drive improvement in the bottom line.

It’s not sufficient to just say “you need to get better margins.” Everyone already knows that. The answer is in the “how.” Everything that happens in a company flows down to the financials. You can’t improve a company by moving numbers around on the income statement or balance sheet. You need to change things on the production floor, on the employees’ desktops, in the purchasing department. You change operations, you affect the financials.  

Leaders in finance are most successful when they have skills in communication, quantitative analysis, financial planning, and team building. This is true largely because in addition to their strategic roles, those in finance are most often in positions of oversight and management and need to be able to communicate their insights effectively to the accounting team who will implement their ideas.

What is Accounting? 

Accounting focuses on the day-to-day flow of money in and out of a business. 

Accounting teams are responsible for:

• Invoicing
• Receiving and posting cash
• Recording and paying accounts payable invoices
• Reconciling accounts
• Creating reports

The accounting team provides income statements, balance sheets, and cash flow statements.

Within accounting teams, there are accounting managers and accountants. 

Most small to mid-sized businesses have some blend of internal and outsourced account teams.  Often, there is a CPA firm, and an internal bookkeeper as well as an accounting manager.  Where these smaller companies fall short of a fully built-out accounting and finance team is in the upper-level strategic roles of controller and CFO.

What are the Corporate Functions of the Roles of Finance vs. Accounting? 

Roles and Responsibilities in the finance department include: 

• Business fundraising/borrowing
• Overseeing risk management
• Guiding corporate strategy
• Budgeting and forecasting
• Guiding mergers & acquisitions
• Fraud detection and prevention

Roles and Responsibilities in the accounting department include:

• Maintaining the books (Bookkeeping)
• AR/AP Accounts receivable and payable 
• Invoicing and collections
• Payroll
• Month-end reporting
• Preparation for annual audits

The Upshot

Finance is strategic, accounting is tactical. In a business scenario, having one without the other leaves unanswered questions. At CFO Simplified, we make the strategic insights that big companies have at their fingertips available to small to mid-sized companies. 

Having a strategic, part-time CFO on your team gives you the edge to make the right decisions for your business now and into the future without requiring you to bring on a full-time, highly compensated member of your C-Suite.  

Want to know exactly what insights CFOs provide? Wondering how to vet a potential part-time CFO provider? We’ve drawn up some questions to ask to make sure you choose a company who understands you, who has experience, and who can provide the right fractional CFO for you DOWNLOAD THE CHECKLIST or read the article here.