Bookkeeping vs. Accounting vs. CFO Services: How They Differ
A business owner says they want “an accountant” who can catch them up on a year of bank feeds, help them understand why cash is always tight and also weigh in on whether it makes sense to open a second location.
The owner believes it’s a reasonable ask. The owner doesn’t realize they’re asking about three different jobs.
Bookkeeping, accounting and CFO services are used almost synonymously in everyday conversation, but they all involve different responsibilities. Confusing them is among the most common ways small business owners end up frustrated with a financial service provider. It’s not that the provider did bad work; it’s that the provider wasn’t hired to do the work the owner actually needed.
Today, we’ll help business owners better understand the distinctions between bookkeeping, accounting and CFO services so you can ask for (and receive) exactly what you need.
Bookkeeping: Recording What Already Happened
Bookkeeping is often called the “foundation” or the “floor” of your business’s financials. It involves accurately …
- Recording transactions
- Categorizing expenses
- Reconciling bank and credit card accounts
- Invoicing customers
- Tracking accounts payable and receiving
- Ensuring payroll entries have been properly recorded
In short: Bookkeepers keep the books current and clean so when someone needs to look at the numbers, those numbers are actually trustworthy. They will also run simple financial reports for accountants and business owners to review.
What they don’t (typically) do is interpretation.
A bookkeeper can tell you that you spent $14,000 on subcontractors last month. However, a bookkeeper generally should not be the one telling you whether that $14,000 was a smart allocation of resources or a warning sign about margin erosion on a particular job.
Regardless, bookkeeping itself is a vital task that growing businesses often overlook or believe they can get done in a big chunk once every six months. But when it comes time to address those numbers, they realize they’ve put together a genuine mess that costs real money to unwind.
Don’t skip it. Don’t shortcut it.
Accounting: Making Sense of the Numbers
Where bookkeepers record and report, accountants review, prepare and analyze. Among the most common accounting duties are …
- Ensuring transactions are recorded according to the proper accounting method
- Handling depreciation schedules
- Preparing financial statements, including income statements, balance sheets and cash flow statements
- Reporting findings to tax collection agencies and regulators
- Interpreting and analyzing financial statements
In short, accountants ensure the business’s financial picture is presented in a way that’s usable, whether that’s by the owner, a lender, a potential buyer or the IRS.
Whereas a bookkeeper will tell you that you spent $14,000 on subcontractors last month, an accountant will tell you how that compares to the same month last year, what it means for your gross margin and whether the trend should concern you.
Accounting brings judgment and technical standards to bear on the numbers that bookkeepers produce.
This is also usually where the tax and compliance conversation happens, making sure the business isn’t leaving deductions on the table, or worse, creating exposure it doesn’t know about.
CFO Services: Using the Numbers to Make Decisions
Chief financial officer (CFO)-level work is typically forward-looking.
Bookkeeping answers “What happened?” Accounting answers “What does this mean?” And CFO services? They answer “What’s next?”
A CFO, whether in-house or outsourced:
- Works with budgets.
- Helps to set pricing strategy.
- Builds revenue, cash-flow and other financial forecasts.
- Models the financial impact of hiring or opening new locations.
- Evaluates financing options.
In other words, CFOs translate financial data into the kinds of takeaways that shape where a business goes over the next one, three and five years.
Outsourced CFO services have become a practical middle ground for small and midsize businesses that have outgrown basic bookkeeping and accounting support but aren’t yet ready to hire a full-time financial executive. It gives owners access to strategic financial guidance (budgeting, KPI tracking, scenario planning and capital allocation decisions) without the cost of a full-time salary and benefits package.
Why Do These Distinctions Matter?
Let’s say an owner hires a bookkeeper. They’re happy with their clean and timely records, but they’re frustrated because the bookkeeper “never told me I should raise my prices.” They expected strategic-level work from a foundation-level service provider.
A different owner hires a high-level financial advisor but never gets the underlying books cleaned up and reconciled. They’re asking that advisor to build strategy on a foundation of unreliable numbers. That exercise might produce confident-sounding advice that isn’t actually true.
Most businesses need all three functions at some point. However, those functions might not always from three different people, and they might not come at the same time. A newer or smaller business might just need solid bookkeeping and annual tax preparation. A business growing past a few million in revenue, adding locations or preparing for a sale often needs the strategic layer that CFO-level guidance provides.
Knowing which layer you’re asking for (and which layer you’re paying for) can make the difference between a financial relationship that feels like it’s working, and one that leaves you frustrated and never completely in the know.
Not Sure Which Level of Support You Need?
Getting bookkeeping, accounting and CFO-level guidance under one roof means your numbers, reporting and strategy are always working from the same set of facts.
McManamon & Co. is an accounting, tax, fraud, forensic and consulting firm that serves small and midsize businesses. Our experienced outsourced CFO, accounting and bill pay team can help you figure out which level of financial support your business needs today, provide those services and evolve with your company.
Call us at 440.892.8900 or contact us online to learn how we can help.
Tags: accounting, bookkeeping, CFO, hiring, McManamon, McManamon & Co., outsourced CFO, small business, small business accounting, small business finances, small business taxes, taxes | Posted in accounting, McManamon & Co., outsourced CFO, small business