Accounting Vs FP&A: How are they Different for Startups?

If you're wondering what the difference is between Accounting and FP&A, you're not alone.

These two functions are both essential for any Finance & Accounting team, but they have distinct roles and responsibilities.

Let us break it down for you.

Accounting

Accounting is all about recording and reporting the financial transactions of your business. It involves:

🔸Financial Reporting: preparing and presenting your financial statements, such as income statement, balance sheet, and cash flow statement. This is also known as bookkeeping.

🔸AP: managing and paying your bills to vendors, suppliers, contractors, etc.

🔸Invoicing: issuing and collecting invoices from your customers and following up on any overdue payments.

🔸Payroll: hiring and paying your employees and handling all the tax and benefit deductions. (Some of this may fall under HR as well).

🔸Taxes: filing and paying your federal and state income taxes, as well as any other taxes that apply to your business, such as sales tax, franchise tax, etc. (You may outsource this to a tax professional).

🔸Audit: working with an external auditor to verify and validate your financial statements and internal controls. (This is usually required after you raise a significant amount of funding).

Accounting is the backbone of your business. It ensures that you have accurate and reliable financial information that you can use for decision making and compliance.

But accounting is not enough. You also need to plan ahead and analyze your performance.

That's where FP&A comes in.

FP&A

FP&A stands for Financial Planning & Analysis. It's the function that helps you forecast, measure, and optimize your business performance. It involves:

🔹Projections: creating and updating your financial model, which projects your future revenue, expenses, cash flow, and key metrics.

🔹Data analysis: using data to identify trends, patterns, opportunities, and risks in your business. For example, you may analyze your customer acquisition cost, customer lifetime value, gross margin, etc.

🔹Budget vs Actuals: comparing your projected results with your actual results and explaining the variances. This helps you understand what's working and what's not and adjust your strategy accordingly.

🔹Board reporting: preparing and presenting your financial results and key insights to your board of directors. This helps you communicate your progress, challenges, and goals to your stakeholders.

🔹Fundraising: pitching and convincing investors to fund your business growth. This requires a solid financial model, a compelling story, and a clear vision. 

FP&A is the brain of your business. It helps you plan, analyze the past, and optimize the present.

Here's a table showing few difference between accounting and FP&A:

Accounting	FP&A
Overview  Prepares financial reporting, mostly on what is / has happened  Handles many financial operations	Overview  Analyzes data & prepares forecasts  Focuses more on the future, but can also involve deep analysis on historical
Common Roles  Staff accountant  Accounting Manager  Controller	Common Roles  FP&A Analyst   Finance Manager  VP of Finance
Common Tasks  Month end close  AP/AR Management  Payroll  Auditing  Taxes	Common Tasks  Budget preparation  Budget vs Actuals analysis  Deep analysis on specific cost / revenue items   Board reporting

As you can see, Accounting and FP&A are both vital for your Finance & Accounting team. They complement each other and work together to support your business success.

We hope this blog post gives you a clear overview of what Accounting and FP&A do. 

 If you have any questions or comments, feel free to leave them below. We’d love to hear from you!