What's The Difference Between Financial Accounting and Management Accounting?
You’re running a business, so you know the legal requirements around producing accounts and submitting tax returns. But do you truly know WHY you’ve engaged an accountant? And do you understand the value that a good accountant and business adviser can add to your company?
As a business owner, managing director or CEO, there are three main areas of the accounting proposition that you’re probably most interested in:
Compliance work – this is the bookkeeping, financial accounting and tax work that’s legally required for you to be compliant with the law. On the whole, this compliance work looks backwards at your numbers from the past (your ‘actuals’), showing you where you have been, rather than where you are going.
Financial performance work – this is the work that aims to improve the financial health of your business. It includes the cash flow, cost management and funding work that helps you to strengthen your balance sheet, manage your working capital and become a more stable financial proposition. The work is based on your historic actuals but also has an element of forward-looking forecasting and projections.
High-value advisory work – this is the forward-focused, high-level strategic advice that helps you look to the future and plan out your business. This can include helping you to define your personal and business goals, create a 5-year business plan, manage your company strategy and focus on growth, value and an eventual exit strategy etc.
How does a management accountant differ from a financial accountant?
To make a success of your business, and to get the best value from your accountant, you need an adviser who can deliver in all of these three areas. But not all accountants are the same. As we’ll see, it’s important to understand the difference between a financial accountant and a management accountant
At the most basic level, these are the key differences:
Financial accountant – in general, a financial accountant focuses on the basic compliance work, with a small amount of financial performance work thrown into the mix. They make sure your bookkeeping is done and dusted, will file your tax returns and use your historic numbers to produce statutory accounts. They’re ‘bean counters’, making sure you have a clear record of all the beans you’ve produced.
Management accountant – a management accountant, however, looks forwards rather than backwards and has a greater focus on the future. They will usually provide the compliance work too but will delve deeper into the financial performance and high-level advisory work. Rather than just ‘counting the beans’ they help you choose the right beans, decide how to plant them and make sure you nurture and grow these beans to bring