Internal finance

internal finance

finance from within the business

external finance

finance from outside the business

owner's capital

how much the owner has invested in the business

assets

items owned by the business

creditors

people who the business owes money to

retained profit

profit kept within a business from profit for the year to help finance future activities

sale of assets

the sale of long term or fixed assets (not current assets)

advantages of owners capital

• Do not have to repay

• No interest charges

• Owner's maintain control

• Risking own savings can be motivational

• Quick

Disadvantages of owners capital

• Owner's risk losing everything

• May only be limited amounts available

advantages of retained profit

• No interest repayments

• Does not dilute business ownership

• Belongs to the business already

• Does not need to be repaid

disadvantages of retained profit

• Only an option if sufficient retained profit exists within the business.

• May not be enough to finance needs

• Useless for start-ups as they will not have retained profits.

• Danger of hoarding cash

current assets

items owned that will change in value in the short run (within one year)

fixed assets

will stay in the business for more than a year

advantages of sale of assets

• No interest charges

• No repayments

• May be turning an asset that you don't use that much or need into cash

• Immediate lump sum cash injection

disadvantages of sale of assets

• Loss of use of the asset and future value

• Is only a one off option

• Only useful if the business does not need the assets.