Types of Stakeholders

For better management of one's business, one should familiarize with the basics of accounting. The article will present the fundamental information as related to small business environment. It will start by discussing some of the important principles of accounting in order to give a high-level overview of its purpose.

The main function of the activity of accounting is that it provides financial information to stakeholders. They are the persons who engage in businesses with a particular firm. Among them are included managers, investors, employees, vendors, government authorities, banks. Each type of stakeholders has its informational needs depending on which the tasks of an accounting system are established.

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The first category of stakeholders refer to investors, entrepreneurs ad firm's managers. The financial information provided by means of accounting helps them determine if their business is making money. Through the data received, they are also given an insight into the development of the business and learn whether it is growing or contracting. Detailed information is required in order to create a picture as clear as possible. An entrepreneur, for example, wants to know which customers are bring profit and which don't. Which product lines are contracting or growing may represent the concern of an active investor. Other aspects which need to be presented through information received from an accounting system are related to asset and liability record. An asset denominates the goods that a firm owns, such as cash, equipment or inventory. A liability represents a debt or obligation that the firm owes (e.g. a bank loan, accounts payable). The detailed record of the inventory from the firm's warehouse, the amount of money from its bank accounts and of the equipment used within its headquarters has to be kept by one of the firm's employees. Most often, it is an accountant that fulfills this requirement. Good general data about the financial affairs of a firm are therefore essential.

Types of Stakeholders

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The second type of stakeholders is represented by external creditors, referring to outside firms that loan money to a certain business and credit reporting agencies. The latter party is responsible with supplying information to the former party. An example will clear things up. When lending money, banks want to know about the financial affairs of the firm that requests the loan. Therefore, the accounting system provides the required data so that the loan request is taken into consideration. Banks are usually keen to know whether the business is profitable or not. If it is, then the cash flow is positive and the debt can be easily repaid. Another point of interest for the lending bank resides in the liquidity of the firm's assets. This aspect is vital because if the borrowing party cannot repay the debt with cash, then the bank can liquidize its assets.

A third kind of stakeholders is illustrated by federal and government agencies with jurisdiction over the firm. Every business is obliged by law to declare its revenues, expenses and profits. These values are used to calculate the income tax collected by the state. Another set of information given to this category of stakeholders refers to the firm's employees- number, their wages. This way, the government agencies can establish pay payroll taxes.

Each type of these stakeholders require particular financial information in order to best administrate relationships with a firm.

Types of Stakeholders