Financial Accounting vs Management Accounting

Financial Accounting vs Management Accounting

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 areas of the accounting proposition that likely interest you:

Compliance work – this is the bookkeeping, financial accounting and tax work that’s legally required for you to be compliant with the law. Compliance work looks backwards at your past numbers (your ‘actuals’). It shows 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. It helps you 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. You can also get help to 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 succeed 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 essential to understand the difference between a financial accountant and a management accountant

At the most basic level, these are the key differences:

Financial accountant – Generally, 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. They 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 – On the other hand, a management accountant looks forwards rather than backwards and has a greater focus on the future. They will usually provide the compliance work also, 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 and decide how to plant them. Then they and make sure you nurture and grow these beans to bring in a better (and more profitable) harvest.

How does a management accountant deliver more value?

Looking to the future is a productive way of managing your finances than just counting what’s in the bank. A management accountant will empower you to understand your business. They will give you the tools and knowledge to make good, well-considered decisions.

This additional help can be invaluable. Your financial thinking can be completely revolutionised with an experienced management accountant working alongside you.

For example, you will:

Stop looking backwards – your focus will be all about looking forwards to what you can change, not just recording your past transactions (the things you can’t now change, even if you wanted to).
Know your numbers inside out – you’ll have a far better understanding of your regular finances, thanks to the detail included in your regular monthly management accounts.
Get in control of your cash flow – you’ll be able to drill down into your cash inflows and outflows and, by doing so, improve the liquid capital and cash flow in the business.
Streamline your financial processes – you’ll refine and improve your internal accounting procedures so you’re more efficient and more productive.
Refine your pricing strategy – by reviewing your pricing model, you’ll be able to enhance your margins, boost revenue and make the whole company more profitable.
Stop unnecessary expenditure – you’ll analyse your overheads, expenses and cost base to reduce the money leaking out of the business.
Bring more money and investment into the business – with more robust accounts and projections, you’ll have better access to funding and private investment.
Get a firm grip on your business data – with meaningful metrics being tracked and monitored through your cloud accounting platform, you’ll significantly enhance your business intelligence and the evidence behind your decision-making.
Improve the quality of your advice – you’ll have an adviser on hand at all times, giving you access to your management accountant’s knowledge, experience and advice.

Talk to us about the benefits of management accounting for your business

If you’re ambitious and keen to grow, switch to the benefits of management accounting. This could have a massive impact on your future destiny.

A financial accountant looks backwards, while a management accountant looks forwards. The difference in focus, ability and oversight makes partnering with a firm of management accountants so rewarding.

Get in touch to talk about switching to management accounting.