Instead of collecting cash at the time of an agreement, it may give a customer trade credit terms such as net 30. A company may agree to extend credit to its customers. Accounting is necessary to collect payments.Through accounting, a company can always know who it has debts to and when those debts are coming due. Without positively fostering these business relationships, a company may find itself with a key supplier or vendor. A company naturally incurs debt, and part of the responsibility of managing that debt is to make payments on time to the appropriate parties. Accounting is necessary to make payments.The basis for valuing a company is to use its accounting records. Instead of simply closing a business, a business owner may attempt to "cash-out" of their position and receive compensation for building a company.
Small companies that may be looking to be acquired often need to present financial statements as part of acquisition or merger efforts. Accounting is necessary for owner exit.Banks and other lending institutions will often require financial statements in compliance with accounting rules as part of the underwriting and review process for issuing a loan. The same rules pertain to debt financing. Prior to private funding, investors will usually require financial statements (often audited) to gauge the overall health of a company. External investors want confidence that they know what they are investing in. Without accounting, a company wouldn't be able to tell which products are its best sellers, how much profit is made in each department, and what overhead costs are holding back profits. Without insight into how a business is performing, it is impossible for a company to make smart financial decisions through forecasting. Accounting is necessary for company growth.
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