A Stakeholder in a business is any individual or entity that holds an interest in it. These stakeholders may have financial or personal investments in the livelihood of the business.

There are two types of stakeholders- internal and external stakeholders. Internal stakeholders have a direct relationship with the business and actively participate in its management whereas, external stakeholders are not directly involved in the operations of the business.

Both internal and external stakeholders use accounting information to make informed business decisions. Internal stakeholders use accounting information to track business performance and determine any future course of action. External stakeholders use the businesses accounting information to evaluate business performance and make investment decisions.

Internal Users Of Accounting Information

Some internal users-also known as primary users of accounting information include directors, managers, employees, internal auditors, owners and stockholders, and internal departments. Internal stakeholders usually use accounting information to

  • Check if the management has fulfilled its responsibility. Many internal stakeholders including stockholders and internal auditors use accounting information to determine if the management took appropriate steps to protect business assets
  • Determine the financial health of the business and make downsizing or expansion decisions
  • Make investment decisions-whether to borrow from market or invest business funds

External Users of Accounting Information

Common external users of accounting information include creditors and lenders, public, government bodies, employee unions, customers and prospective owners-if the business is up for sale.

Here is how external stakeholders use accounting information

  • Creditors and lenders: They use accounting information to check the creditworthiness of the business and determine if they should lend to the business going ahead
  • General public: People who have invested in the business use accounting information to track business information and manage their investment risk. Financial statements of a business contain important information that investors can use to decide if they should ramp up investment or slow down
  • Government bodies: Government bodies use accounting information to check if the business is filing tax returns correctly
  • Employee unions: Employee unions can use accounting information to determine if the business is financially capable of generating new jobs, providing long-term employment benefits, and giving a decent pay hike
  • Customers: If you supply materials to businesses, a customer may want to review your business’s financial statement. Customers use accounting information to determine the financial health of suppliers and ability to remain in business long enough to provide the goods or services they need and honor warranties
  • Prospective owners: Prospective owners will need financial information to determine if the business has generated returns for its investors and if their investment have made money
  • Rating agencies: Rating agencies will need to review the financial statement of businesses so they can assign ratings

Because of the interest of stakeholders, it is important for a business to keep accounting information organized and accurate. Both external and internal stakeholders use this data to determine their worth of investment and make decisions within the business.

If your business needs assistance in ensure you accounting information is accurate, give Virtual Jeannie Bookkeeping Services a call. Virtual Jeannie Bookkeeping is a renowned small accounting firm that understands the large complexities of a business’s bookkeeping. Let our team of experts take the guesswork out of your bookkeeping. To make an appointment, call (707)664-1425.