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What is the difference between advertising and marketing from an accounting perspective?

I am doing my bookeeping and I have two accounts in xero. One for marketing and one for advertising. When I am logging my expenses like facebook ads or paying a VA to write a blog post or giving away products to a style influencer where do they go? Is there a clear between what is an advertising expense and what is a marketing expense for the purposes of accounting? And whay would I want to separate the two?

20 Replies

Paul O'Brien
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Paul O'Brien Entrepreneur • Advisor
Tech Economic Development and VC CMO
Technically yes, marketing and advertising are drastically different and the mistake most businesses and startups make is considering them the same. Advertising is a way of promoting one's business. It's a an expense in the sense of a budgeted cost akin to Capex. That capital expenditure is the appropriate way to think about advertising because Marketing really should be though of as Opex. Now, don't quote me on that from an Accounting standpoint, I'm sharing a philosophical one. Marketing is a practice. Any business in operation is by way of doing business marketing. It's the practice of the market in the same sense that your practice is the accounting; sure, it's something companies can avoid or just not do but I'm sure you'd agree that any company that fails to do the work you do is doomed... same is true of Marketing. So what are the marketing related investments (note that I'm not calling them costs)? Customer service, design, sales, research, analytics, and martech (Marketing platform) licenses are all ongoing marketing investments. They're things that most businesses wouldn't disregard unless they just don't care about their success, and yet many businesses won't invest in "marketing" because it has been perverted into being considered just advertising, growth, etc. Marketing is how a company knows IF, how, where, and why to advertise. Whether or not it does is a budget line item. Thus marketing also then determines if and how, instead of advertising, a business might pay for commercials, trade shows, content, lead gen, etc. Famed economist Peter Drucker once said, paraphasing, that the only two things that create value in business are innovation and marketing, and that marketing was the distinguishing of the two. He wasn't talking about advertising.
Ava Kohl
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Ava Kohl Entrepreneur
Founder at Element15
Hi Angela,

Paul O'Brien is incorrect in saying that Advertising should be classified as a CapEx. Marketing and Advertising should both be classified into just one category.

I hired a great CFO where they also do basic bookkeeping. I can refer you to them if you like. I get a nice bonus by referring you and you get a break on your plan.

I use MyBooks.Solutions. I know they are not using the traditional domains but it's https://www.mybooks.solutions.

They helped me immensely sorting out my books.

Good luck, Angela!

Paul O'Brien
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Paul O'Brien Entrepreneur • Advisor
Tech Economic Development and VC CMO
I didn't say it should be classified that way ;) in fact, I said I wasn't commenting on how to account for it, merely how to think about why it's different from Advertising
Ava Kohl
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Ava Kohl Entrepreneur
Founder at Element15
It is still incorrect either way you slice it. CapEx is something that you know will spend and will be depreciated overtime. Explain to how are you going to depreciated Advertising? We'd love to know. :DD
Frank Intiso
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Frank Intiso Entrepreneur
Professor-Business at California State University
Hi Angela
Both marketing and advertising are expenses from an accounting point of view and are expenses at time you incur these costs.

As far as setting up two accounts or just combining them the answer would depend on your business and how much money you will be spending on these two types of expenses.

Also it would depend on how you establish your budget. Without knowing more information about your business and plans I would suggest setting up two accounts. If you do not find that this is helpful to you, then you can combine at a later date



Gregory Stromberg
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Gregory Stromberg Entrepreneur
Founder/CEO cannedwater4kids inc.
Purpose of marketing & advertising is to keep good customers for life & to squire more good customers. I don't see a difference but I would look at each dollar spent as an investment with an ROI. Look & define as a project & project cost with a deliverable. Be careful to define what the purpose is & measure. What are you willing to invest to keep, get more business or acquire more good customers. It all falls under marketing expense. I would use activity based cost accounting. Greg Sent from my iPhone Greg Stromberg www.cannedwater4kids.org
Hassan Adil, CPA, CA, CFA, MAcc, BMath
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Associate Corporate Finance at Tricon Capital Group Inc.
Both expenses are the same. You can use either categories from a tax perspective.


Angela Wozniak
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Angela Wozniak Entrepreneur
Founder at Annielka
Hi guys, thanks for your responses. I think I'll lump everything under the one account. However if I want to see how much I have spent on each marketing channel each month what is the best way to separate that in Xero? Or should I just track that manually in a spread sheet?
Chicke Fitzgerald
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Chicke Fitzgerald Entrepreneur • Advisor
Game Changing Strategist, Advisor & Technologist | Board Candidate | Zigging where others Zag
The whole point of finely classifying expenses is to give you decision making information for the future.

From my perspective, advertising is trackable back to campaigns, so you could track the increase in hits and conversions during the campaign period in relation to your spending and decide whether to spend more or less in the future based on those results. Marketing is more general and tends to build brand awareness (e.g. going to a tradeshow). It tracks to general growth in business and you should measure your marketing spending as a percentage of sales.

I highly recommend that you read Accounting for the Numberphobic by Dawn Fotopulous. You can also listen to my interview with her on http://www.blogtalkradio.com/solutionzlive/2015/02/13/dawn-fotopulos-a-survival-guide-for-small-business-owners

Trudy Hetzel
0
1
Trudy Hetzel Entrepreneur
owner at Trudy's Taxes & Bookkeeping LLC
Marketing is usually project based, like a home-show or open house. Advertising is usually on-going like a website or yellow pages ad. For tax purposes, there is no reason you can't combine these accounts. For in-house accounting analysis, you might want to track your leads/sales generated from Marketing campaigns to see if they are worth repeating.
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