Key Concepts
What is a Stakeholder?
Stakeholders are groups of people who use information about a business to make decisions. They include:
- people inside the business — e.g. managers;
- people outside the business — e.g. suppliers, government.
Key Stakeholders and Their Decisions
| Stakeholder | Relationship with business | Decision made using accounting information |
|---|---|---|
| Owners / Shareholders | Contribute capital (the money put into the business to start and run it); expect profit in return | Whether to invest in or sell the business, depending on risks and returns |
| Managers | Run the business day-to-day | Ways to improve the performance of the business |
| Employees | Work for the business | Whether to continue working for the business |
| Lenders | Lend money; earn interest | Whether to grant loans, depending on the business's ability to repay the loan and pay interest |
| Suppliers | Supply goods or services on credit (deliver now, get paid later) | Whether to sell to the business on credit, depending on its ability to pay |
| Customers | Buy goods or services | Whether to buy from the business, depending on its ability to provide the goods or services needed and good after-sales service |
| Government | Collects taxes; enforces regulations | Whether the business complies with tax regulations; the amount of tax to collect |
| Competitors | Sell similar goods or services | Whether they are comparable to the business; how to improve their own performance |
Accounting vs Non-Accounting Information
| Type | Description | Examples |
|---|---|---|
| Accounting information | Comes from the business's accounting records and can be expressed as a money amount |
|
| Non-accounting information | Information about the business that is not a money amount and is not found in its accounting records |
|
Stakeholders use both types of information to make decisions.
For each stakeholder, ask: what does this person want from the business? Their decision follows directly.
- Lenders want their money back → decision is about ability to repay loan and interest.
- Suppliers want to be paid on time → decision is about ability to pay invoices.
- Employees want job security → decision is about whether to continue working for the business.
Identify two stakeholders of Redhill Supplies and state the specific decision each would make using accounting information.
Stakeholder 1 — Lenders (the bank)
Decision: Whether to grant the loan to Redhill Supplies, depending on the business's ability to repay the loan principal and pay interest.
Stakeholder 2 — Owner
Decision: Whether to continue investing in the business or to sell it, depending on the risks and expected returns.
Naming a stakeholder but giving a vague decision. "The supplier will decide about the business" scores nothing. You must state the specific decision: "whether to sell to the business on credit, depending on its ability to pay."
Confusing lenders with suppliers. Lenders provide money (a loan); suppliers provide goods or services on credit. Lenders care about repayment of loan and interest; suppliers care about payment of invoices.
Treating owners and managers as the same stakeholder. They have different decisions:
- Owners decide whether to invest in or sell the business.
- Managers decide on ways to improve the business's performance.