Despite the name, both accounting and finance have more in common than you might think. While they are both critical aspects of business operation, their roles and functions are different, meaning that an understanding of each discipline can help you be a better leader in your organization.
Here’s what you need to know about the differences between accounting and finance and how it can help your business become more successful.
What is accounting in business?
A business must record all its transactions, both income and expenses, so it can accurately track its financial health. This process is called accounting. Top accounting services are responsible for compiling data into reports that reflect a snapshot of where a business stands financially at any given moment in time.
These reports are used to make decisions about how to proceed going forward, such as whether or not a particular investment will pay off or if cash reserves need to be replenished.
What is finance in the business?
The finance department is often regarded as an enigma. Their inner workings are so complex that they could only be understood by those with a lifetime of experience in them.
This need not be true, however, and to understand what it is that finance does for your business you first need to grasp one fundamental thing: Money doesn’t come from thin air. That might sound obvious but it really isn’t when you stop to think about it.
Where do businesses get their money? From customers, right? By providing products or services that other people want to buy.
So there we have our answer: It all comes down to supply and demand –the basic principles of economics–and understanding how these work will help us better understand how finances work in a business context.
Why do we need both?
There are often many overlaps between what accountants do and what finance professionals do. At its core, both accounting and finance are about managing risk in a company. For example, top accounting services work with companies to ensure that they properly value their assets.
This helps businesses reduce their risk exposure from things like bankruptcy or fraud by making sure all of their assets are accurately identified as either current or non-current based on how quickly a company can convert them into cash.
Accountants also help managers understand which business decisions will have a positive impact on profitability and which will likely lead to losses. Accountants, for instance, may help managers analyze whether it’s better for a company to invest in new equipment or hire more employees—or whether it would be better to just expand operations at an existing location.
On top of helping manage financial risks within companies, top accounting services also help managers make strategic decisions that could have an impact on future profits.
How are they different?
The roles in accounting, finance, and operations are similar in that they all work to maintain a company’s financial status. However, there are some significant differences between these career paths.
Finance works with companies’ money: an accountant may handle payroll or ensure taxes are paid on time.
And finally, accountants keep records of a company’s financial information and make sure it complies with government regulations. Accountants do not typically have any say over how much a company spends or earns—they simply record its activities.