The importance of business accounts 3 25 Stakeholders

The importance of business accounts . 3 25

Stakeholders and businesses Who, or what, are stakeholders? If you have already studied Unit 2. 8, you should know the answer! Unit 3 is concerned with stakeholders who are interested in the financial performance of a business. 3. 25 The importance of business accounts

Stakeholders are individuals or groups who have an interest in business because: · They have expectations about the performance of the business. · Their lives are affected by the business. · They can influence the plans and operations of the business. Employees and customers are both stakeholders in Richer Sounds. 3. 25 The importance of business accounts

Types of stakeholders with a financial interest · Shareholders – who have invested their own money in the business. · Managers – who make decisions which affect the financial performance. · Employees – concerned about their jobs. Some may also be shareholders. · Banks – which have lent, or plan to lend, money to the business. · Customers – who want to know that service agreements will be honoured. 3. 25 The importance of business accounts

Key items for stakeholders in a profit and loss account · Sales – amount received from customers. Is compared with previous years and with other firms in the same market. · Expenses – any major changes from previous years? · Net profit – an important measure of ‘health’. A good profit is required to pay good dividends and invest money for future developments. 3. 25 The importance of business accounts

Key items for stakeholders in a balance sheet 1 · Assets – are there plenty of assets? Could some be sold to raise money? But too much money tied up in stock may mean that sales are low. · Debtors – if figure is too high in relation to sales, customers are not paying their debts quickly enough · Cash at bank – how much is available? Enough to pay debts or cope in an emergency? Is the account overdrawn? This would indicate serious problems. 3. 25 The importance of business accounts

Key items for stakeholders in a balance sheet 2 · Creditors – how much money is owed to suppliers? If this figure is high, it may indicate the company is not paying its own debts quickly. · Shareholders’ funds – the money that ‘belongs’ to the shareholders. This amount should increase each year and it influences the share price. 3. 25 The importance of business accounts

Stakeholder interests 1 · Shareholders – want good dividends. Want the share price to rise. These aspects are affected mainly by profit and shareholder funds figures. · Managers – make decisions which affect financial performance. Financial accounts reflect their success/failure. All managers interested in sales and profit figures. Some may also be shareholders or be paid bonus linked to profit. 3. 25 The importance of business accounts

Stakeholder interests 2 · Employees – want job security. Good profits can mean good pay rise. Employees may be shareholders and/or involved in bonus scheme. · Banks – mainly interested if have loaned money or asked to do so. Want to check money is safe and will be repaid. Will check creditors’ figure and cash in bank. · Customers – may need equipment to be serviced or spare parts to be supplied for expensive items. May be critical for business customers. Will check sales and profit to check business is viable. 3. 25 The importance of business accounts