The Distinction Between Accounting and Finance

Is your SME missing out on strategic financial growth because you're relying solely on an accountant?

For many SME owners and entrepreneurs, finance and accounting are often seen as one and the same. While closely linked, each serves a distinct purpose in financial management.

The Role of Accountants in SMEs

Accountants play a fundamental role in SMEs’ financial operations, often being among the first professionals engaged during business formation. They handle key setup processes, including:

• Company registration
• Articles of incorporation
• Accounting software implementation.

Beyond these initial steps, accountants ensure accurate financial record-keeping, tracking cash flow, income, expenses, and assets. Their work supports tax compliance and end-of-year financial reporting.

The Role of Finance in SMEs

However, compliance is only one aspect of financial management. A broader, more strategic financial role is essential for business performance, financial health, and long-term growth. This is where a Finance Director adds value—providing forward-looking insights, financial strategy, and funding guidance.

For SMEs, the most accessible and cost-effective approach to securing this expertise is through a part-time or ‘fractional’ Finance Director. This model offers flexibility and strategic financial leadership without the commitment of a full-time salary.

Why Your Accountant Alone Isn't Enough: The Role of a Fractional FD

What we often hear from SMEs, whether we’re talking pay-as-you-go financial management with them, or working with them as growth advisors, is “My accountant covers everything.”

While accountants provide essential compliance services, their role doesn’t extend to proactive financial strategy. They can only advise you on financially efficient and compliant ways to account for what’s already happened and only based on figures you’ve supplied to them.

Equally, accountants’ typical engagement model of a few touch points per year, whilst fit for accounting purposes, is too infrequent for them to gain a deep understanding of the financial shape your business is in.

A fractional FD, however, is:

• Involved in the business’s finances regularly and repeatedly, throughout the year
• Able to deliver ongoing financial review to ascertain whether performance is on target
• Skilled in modelling finance, to anticipate future performance
• Always watching for what’s coming around the corner, to ready the business for a financial response

Accounting vs. Finance: More Key Differences

Although accountants and fractional FDs contribute to financial stability, their roles differ significantly. Accountants focus on financial records, whereas fractional FDs provide financial leadership.

A fractional FD continuously evaluates critical business questions, such as:

• How is the business currently performing financially, and how does this compare to projections?
• How did the business get to this point, and how does that validate the business’s overall strategy, or call for adjustment?
• Where does the business need to go next to achieve its strategic vision, and how will Finance support this progression?
• How will Finance deliver value across all aspects of the business, including operations, internal stakeholders, funders, and investors?

Fundamentally, a fractional FD is there to make the changes and reinforce the practices that ensure the business will perform in optimally.

Part-time Finance Directors typically bring extensive experience from senior in-house finance roles across multiple sectors. This depth of expertise, developed in larger and more complex business environments, provides valuable strategic insights and guidance for SME clients.

The Financial Resource Gap in SMEs

One of the key factors behind SMEs’ misinterpretation of the role of their accountant is cost-saving. Many small businesses operate with tight financial constraints, leading them to believe that an accountant can cover all aspects of financial management.

This can create vulnerabilities in how the business deals financially with unforeseen issues, widening its exposure in the face of developments such as:

• Changes in the tax regime (such as the recent increases to employers’ National Insurance contributions)
• Changes to the law, such as the forthcoming new employment legislation, potentially increase the risks and costs of growing headcount
• Supply chain interruption or disruption
• Rising costs of sources of external finance like borrowing and debt, caused by interest rate increases
• Climbing costs owing to inflation

These are issues that can often be offset to a manageable degree by timely changes in Finance strategy and tactics, but without an FD in place, there is nobody to lead or guide these actions.

How a Fractional FD Bridges the Gap and Strengthens SME Financial Strategy

The fractional Finance Director (FD) model provides SMEs with cost-effective, flexible access to high-level financial expertise without the commitment of a full-time salary. This approach enables small businesses to benefit from senior financial leadership on an as-needed basis, leveraging big-business expertise to drive strategic objectives within a limited timeframe.

Unlike accountants, a fractional FD focuses on financial oversight beyond compliance. They:

• Ensure the financial health of the business
• Secure and manage funding for strategic growth
• Navigate change, challenges and opportunities
• Identify hidden potential within financial and operational processes—such as improved reporting accuracy through new finance systems, faster billing via automated invoicing, or enhanced cash flow through more efficient payment methods.

With extensive experience across various sectors, a fractional FD also serves as a critical link between accountants, leadership teams, and the wider business. By providing a comprehensive financial perspective, they help align financial strategy with broader business goals, ensuring sustainable growth and resilience.

Do SMEs Need Both Accounting and Finance?

Absolutely.

As SMEs grow to millions in turnover, few would consider operating with only an accountant and without a Finance Director (FD). Yet, during the critical early stages of growth—when financial strategy and business alignment are established—the importance of an FD is often overlooked.

Proactively integrating financial expertise early can drive faster, more sustainable growth. By combining a reliable accountant with a skilled fractional FD, businesses gain:

• Compliance and accurate financial reporting from their accountant
• Strategic financial oversight and leadership from their fractional FD

A fractional FD serves as the financial conscience of the business, ensuring informed decision-making, financial stability, and a clear path toward long-term success.

For more information on how EFM’s fractional FD services work together with your accountant to accelerate growth in SMEs like yours, get in touch.

About Kevan Hopwood

Kevan Hopwood brings over 20 years of experience in finance, service industries, and business consultancy to support SME clients throughout their growth. His approach combines detailed financial management with proactive communication of insights from numbers and business plans.

With a strong background in troubleshooting and turnaround work, he helps larger companies identify hidden issues and opportunities for improvement. CIMA-qualified, Kevan emphasizes detail and financial accuracy, ensuring that forecasts and analyses are based on high-quality data.

View Kevan's full profile here