If you’re curious about the differences between accounting vs. finance careers, I’m happy to share the distinctions with you. You may be questioning whether you should be an accounting major or pursue the path of finance instead. Hopefully, you can look at the career trajectory for both to help you make an informed decision.
Accounting vs. Finance Careers: Accounting
First, you may have learned that the most common entry-level position for an accounting student is in (Big 4) public accounting. Public accounting provides excellent exposure to a wide variety of areas in a business, excellent training, and management experience early on. So, by working in public accounting, you will learn how businesses work. Most accountants who enter the public accounting field don’t plan on staying more than 3-6 years and use it as a springboard for their careers
The progression in Big 4 public accounting is based on an “up or out” model. In public accounting, there is a lot of turnover and some layoffs. About 1/3 of the people within each position never make it to the next promotion because they either quit, were fired, or left for a better job. The Big 4 career hierarchy is as follows:
- Associate: 0-2 years of experience
- Senior Associate: 3-5 years of experience
- Manager: 6-10 years of experience
- Senior Manager: 11 years of experience
- Partner: 11+ years of experience
Public Accounting Goals
The goal once you’re in public accounting is to stick it out as long as you can. Consequently, the available opportunities are more rewarding the longer you stay in public accounting. However, working in public accounting can be grueling at times. But, the experience adds a lot of value to your resume over the long term. Even a 2 or 3 year period gives you an ex-Big 4 title, and your resume will pique the interest from prospective employers because of this.
The general rule is that those in public accounting advance at about 1.5-2x the rate of those in private industry. So, someone enduring 6 years in public accounting should be able to fill a management position that may typically take 9-10 years for a non-big 4 veteran to achieve. The reason the demand for those with public accounting experience is high is that Big 4 employees have broad accounting exposure, an excellent work ethic, and management training/experience.
Common Exit Paths for Big 4 Veterans
Most Big 4 employees don’t have plans to make it 11+ years in public accounting to become a partner. So, you’ll need to keep your ideal exit path on the radar and leave when the time is right. Some of the most common exits from public accounting are into a corporation’s accounting roles, such as:
The internal audit function handles the internal controls that are in place at a company. Working in internal audit means your job tasks may include designing, implementing, and testing internal controls. Also, the internal audit team is responsible for ensuring the financial reporting system is reasonably free from fraud or errors.
Those in a treasury role handle the capital and manage the liquidity of a business. Duties could include cash forecasting, working capital management, and maintaining credit lines/debt. Also, treasury positions could handle more strategic areas, like capital risk management or fundraising through IPO, bond issuance, or M&A.
The corporate finance function manages the capital structure (source of funding) and allocation of cash. Investment analysis, capital budgeting, valuation, and project management are some of the responsibilities associated with corporate finance. If the company is involved in M&A, this function will lead the analysis and management of the deal. While ex-public accountants often fill some of these roles, it is more likely that someone with valuation/due diligence or investment banking experience will rise through the ranks.
Financial Planning & Analysis
FP&A can mean a lot of things, but many times companies disguise positions as FP&A. And disguised positions generally encompass glorified cost accounting. At best, the role involves developing metrics for forecasting cost/revenue drivers and strategic project management planning. At worst, someone in an FP&A position will complete budget vs. actual calculations and helps close out the monthly financial statements. This role often puts together financial reports for the C-suite and can be a great stepping stone to VP finance and CFO.
For the ambitious accountant, it is quite possible (especially coming from a Big 4) to make a jump into finance or consulting. Some will go the MBA route, and others will network their way straight in. Within the Big 4 firms, there are service lines that oversee valuation, due diligence for M&A deals, and even internal middle-market investment banks (called Corporate Finance). These positions are not as easy to come by, but they are still possible.
Staying in Public Accounting for the Long Haul
Of course, some do stay in public accounting until they’ve made a manger. Consequently, managers either stay until they make partner or fill similar positions like those at the senior manager level.
Looking longer-term, those with public accounting experience serve in management/direct positions within accounting/finance roles in corporations later in their career. It’s also no surprise that most CFOs at large corporations have a background in public accounting. Public accounting experience provides employees with a clear understanding of what drives a business. Therefore, employees with public accounting experience are perfectly positioned to become CFO.
Conversely, tax professionals often rise through the ranks in a corporation’s tax department or break off and start a CPA firm.
Accounting vs. Finance Careers: Finance
One of the most sought after entry-level positions for a finance student is in investment banking. Specifically, finance students tend to target the Investment Banking Division (IBD), which is the M&A department of the bank. Investment banking has a much more defined career path that includes building specialized skills in financial modeling and valuation. Standing out in the crowd and getting the job is very difficult, the hours are long, there could be significant travel, but the compensation is incredible.
Most investment banks offer a 2-year analyst position. And investment banks expect 2-year analysts to move on to another firm or leave to attend an MBA program. Analysts spend time preparing pitch books that will be presented to potential clients and updating financial models. The 2-year period is associated with very long hours, including potential all-nighters. Furthermore, the analyst program is a rite of passage in banking, and completion of the program propels one’s resume to the top of the stacks of other banks, “buy-side” firms, and MBA admissions (along with a fat bonus). There are a few main areas of focus in finance, including investment banking, sales and trading, private equity, and hedge funds.
Additionally, if you are pursuing the path of financial analyst, I strongly advise you to become a CFA.
Investment banking (IBD)
Investment bankers act as advisors for companies who want to raise capital through debt or an IPO. Additionally, investment bankers work to buy, sell, or merge their company (M&A). You will typically be preparing to present a deal, presenting a deal, or finding people to present a deal to. There is a lot of modeling involved (although much of it is updating current models), and attention to detail is critical. You’ll learn how to value companies using a variety of valuation methods that will serve you well in a career in finance. Also, you’ll learn how to work on 4 hours of sleep.
Sales & Trading (S&T)
These are the traders that you see shouting on the Wall Street trading floor. They’re always on the phones talking to clients and making quick decisions. You’ll need an aptitude for the markets and a natural sales ability, but the lifestyle is hard to beat in the finance world.
Private equity is similar to IBD, but instead of acting as an advisor, you’re putting your own money (or bonus) at stake and buying entire companies. They buy companies they think can be improved. Then, they fix them up and make them profitable and sell them on public markets or to other buyers. Private equity also encompasses venture capital and angel investors, though typical “private equity” firms buy more developed companies.
A hedge fund position is similar to S&T. However, in a hedge fund position, people make trades on the market using a lot of leverage to reap in profits. They invest money for institutions and individuals and take a management fee, as well as a percentage of the profits (but none of any loss).
Buy-Side vs. Sell-Side
Investment banking and sales & trading are on the “sell-side” because these employees are acting only as an advisor and not putting their own capital at risk. So, you can remember that the sell-side sells services while the buy-side buys assets.
Private equity firms and hedge funds are known as being on the “buy-side” because they buy companies, whether they buy the whole company or just some of its stock.
Doing a stint as an analyst in investment banking (IBD) sets you up to stay in IBD or work in private equity. There are other options like working at a company in their corporate development, investor relations department, and their corporate finance department.
In finance, the buy-side is usually preferred over the sell-side because the hours are lower and compensation is usually higher. A career path many bankers have for their career is 2 years as an analyst, 2 years as a “pre MBA” private equity associate, MBA, then either back to the investment bank or private equity.
Further, another option is to switching from M&A to sales and trading within an investment bank or joining a hedge fund. Others have done banking and then used an MBA to make a switch into consulting as well.
Accounting vs. Finance Careers: Finance Competitiveness
I think it is worth noting that these areas of finance are extremely competitive and usually require a combination of an Ivy League degree, incredible networking, and a killer resume. Within finance, you will find that success is dependent on individual merit, but a big focus is on pedigree. With thousands of applicants and only a few spots available, companies can hand-select the smartest and hardest working individuals from the top schools and firms. If you have dreams and aspirations of one day working at a top private equity firm, you may have an uphill battle if you went to a state school and joined a no-name investment boutique.
In vying for a finance role, you’ll be competing against the Harvard and Wharton grads with Goldman Sachs experience on their resume. Many aspiring finance majors who don’t go to “target” schools and don’t have their networking down, don’t even break into banking and are left with wealth management or accounting jobs. However, hard work trumps all and there will always stories of people landing the most competitive jobs through networking, regardless of their collegiate or work experience background.
Accounting vs. Finance Careers: Summary
Accounting careers lead can to varied positions in corporations and are generally pretty stable. The options available are broad, and with a start in public accounting, one can explore careers in both accounting and financial roles. There are many c-suite employees who followed this path as well.
Finance careers can lead to somewhat narrower but incredibly successful positions making huge sums of money. The skillset is valuable and the experience gained is viewed as top-notch. However, barriers to entry and fierce competition can pump the brakes for some but when it’s good, it’s great.
Continue below for the next parts in the series: