A business owner meets with his financial adviser at his business. The adviser has a laptop resting on a cardboard box while they review data on the computer.
Accounting and financial planning perform essential but different functions for a business. You should leverage both disciplines to help build a smooth-running, enduring company. — Getty Images/fatihhoca

Accounting and financial planning are two different areas of expertise that many business owners conflate. However, hiring a financial planner to do your accounting isn’t the best idea. These disciplines may overlap in the process of running your business, but you shouldn’t be picking one function over the other. Here’s a quick guide to the different roles accounting and financial planning play in your business.

Focus

Accounting and financial management both have to do with managing your business assets, but from different perspectives. “Accounting provides a snapshot of an organization’s financial situation using past and present transactional data, while finance is inherently forward-looking; all value comes from the future,” wrote Harvard Business School Online.

Accounting is primarily concerned with tracking and recording income, expenses, assets, and liabilities. Accountants prepare documents such as income statements and balance sheets that offer a snapshot of the company's financial health at a specific point in time.

Comparatively, financial planning focuses on strategies to achieve long-term financial goals. Small business owners hire financial planners to assess their current financial situations, risk tolerance, and goals. These planners can help a startup determine how much funding to raise, plan for major expenses (like an expansion), or mitigate risks.

[Read more: How to Create a Financial Forecast for a Startup Business Plan]

Key activities

Accountants and financial planners do very different things on a day-to-day basis. Accountants manage tasks such as bookkeeping, tracking revenue and expenses, financial and internal reporting, auditing, and risk management. “An accountant records, summarizes, analyzes, and creates reports of financial transactions,” wrote Investopedia.

A financial planner is more concerned with funding the business. This role includes activities such as raising capital, corporate strategy, budgeting and forecasting, and overseeing mergers and acquisitions. Financial planning aims to get the best risk-adjusted returns and will track metrics like cash flow, profit margin, and cost of capital.

Accounting is like looking in the rearview mirror to get a clear view of your business’s financial track record. Financial planning takes a view through the windshield, helping you navigate toward your desired financial future.

Measuring financial performance

Speaking of key metrics, accounting and finance have different approaches to measuring financial performance. Accounting uses the accrual method, which records transactions as they are agreed upon rather than when they are completed. This means your business can allow customers to use credit cards or payment plans. The philosophy behind accrual accounting is that revenues and costs will “smooth out” over time to show an accurate snapshot of a company’s financial health.

[Read more: Accounting Basics Every New Business Owner Should Learn]

“Finance rejects that idea, instead believing that the best way to measure economic returns from a company is to calculate the cash it’s able to produce and leverage, which is dependent on when that cash is exchanged—rather than just agreed upon,” wrote Harvard Business School Online.

Finance instead uses metrics like net profit margin to understand business performance.

Tools and skill sets

Accounting teams use tools to establish a record of the company’s finances that can be used in tax audits and reporting. Accounting compiles data in a general ledger, where all transactions across the company’s supply chain, procurement, payments, and other functions are kept in one place. Accountants use accounting software and spreadsheets extensively to record accounts payable and receivable.

Financial planners use the same information for financial projections. Financial teams use historical data generated by accountants with market data and industry trends to chart a path forward. “While a financial planner must be good with numbers and possess a keen understanding of how the markets work, it is arguably more important to have strong sales and networking skills,” wrote Investopedia.

Ultimately, financial planning and accounting are both core functions of a growing business. Accounting is like looking in the rearview mirror to get a clear view of your business’s financial track record. Financial planning takes a view through the windshield, helping you navigate toward your desired financial future.

CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.

Applications are open for the CO—100! Now is your chance to join an exclusive group of outstanding small businesses. Share your story with us — apply today.

CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.

Brought to you by
Simplify your startup’s finances
Not sure where to begin in getting your business’s finances in order? Navigating the complex finances of a growing start-up can be daunting. Learn about the key financial operations that will keep your startup running smoothly — from payroll to bookkeeping to taxes — in this guide.
Learn More
Published