You’re probably familiar with the terms ‘bookkeeping’ and ‘accounting’.
Are you equally as familiar with the terms ‘financial accounting’ and ‘management accounting'?
I suspect not. And you are not alone.
Whilst they are both accounting, they are very different specialities. And management accounting has had a much lower profile than financial accounting. Which is a shame, because management accounting is more likely to help you to run your business and make good decisions about your business than financial accounting is.
A matter of direction
Financial accounting represents the recording of transactions. It has happened. It has gone. It is in the past. Apart from some specific allowable tweaks, there is nothing you can do to change what happened. It is reactive.
Bookkeeping is part of financial accounting.
Tax is part of financial accounting.
Management accounting is forward focussed. It looks to what might happen, what could happen. It is the future.
It contains planning and budgeting, and being able to make sound decisions that affect the future direction and operation of your business. It puts you in the driver’s seat. It is proactive.
The two exist side-by-side, but it is likely that your accounting support is by financial accountants.
New buzz-words currently abound: business advisors, business partners, virtual CFOs.
From my experience of these, this is management accounting repackaged.
And long may it continue, because the benefits to business owners can be huge (if nothing new).
To find out more about the different accounting specialities, book on one of our Into the Deep seminars.
And keep reading this blog to open your eyes to what else is out there.