As a business owner, you want to understand how your business’s financial performance positions your company in your market. Strong business accounting and knowledge of what impacts your business’s finances can become a sword and shield in your battle for a more significant market share.
Many people see business finance and business accounting as synonymous. While both of these terms deal with the management of your financials, they tackle different aspects of your financial strategy.
Understanding the difference between finance and accounting will help you build financial knowledge, make better strategic decisions, and know when to outsource these tasks or keep them in-house.
WHAT IS BUSINESS ACCOUNTING? Accounting paints a picture of where your business is financially at a specific point in time. It involves the processes of reporting and communicating your business’s financial information. Accounting is broken down into two parts. One part involves internal accounting processes that create reports used by management—the other deals with putting together financial statements that are used internally and externally.
In business accounting, we use the accounting equation, or balance sheet equation, to show that a company’s records accurately reflect transactions carried out over a period of time. The equation shows that all of the company’s assets are equal to the sum of the company’s liabilities and shareholders’ equity.
Accounting guides financial activities and strategies by recording financial data, compiling reports, and summarizing performance. Financial performance is measured by revenues that are balanced out over time in order to compare growth from year to year. Value is assessed by using different principles, such as the most commonly used conservatism principle.
WHAT IS BUSINESS FINANCE? Business finance deals with the different ways in which a business generates and spends capital. In other words, finance is how you manage your money, whether that involves budgeting, taking out loans, making investments, etc.
Finance looks at efficiency and how the business makes use of cash flows. In finance, free cash flows measure how much money a company has to utilize after the day-to-day expenses have been taken into account. In other words, finance takes information from accounting and determines how much money can be distributed. This is where you can see if a business is profitable.
WHEN TO OUTSOURCE ACCOUNTING AND WHEN TO SEEK FINANCE CONSULTATION As your business grows, you may find it challenging to manage all of your accounting in house. When you get to this point, it will be a great benefit to outsourcing your accounting management and administration to an accounting firm. Doing so can save you a lot of time and money in the long run. It can also save you the headache of dealing with the IRS when things are not accurately accounted for.
At Aldridge, Borden & Company, we use a tool called the OneSource solution. Our CPAs manage this accounting software and teach you how to effortlessly pull reports and view top-level financial information so that you always know how your business is doing. We can walk you through all of the cogs and wheels involved in what impacts your business’s finances while helping you keep accurate and ready to follow reports and statements.
In addition to accounting services, Aldridge, Borden & Company also offers financial consulting for your business. Our business consultants have extensive experience and training and can provide a diverse range of financial consulting services, including tax strategies and financial forensics. Consulting with an accounting firm is an excellent way to grasp your company’s financial performance better and develop a strategy for financial success.