learning aim D

internal finances

internal finances

internal sources of finance are those available from within a business. these include:

Sale of assets

selling an item worth owned by a business in order to achieve an immediate cash injection.

Retained profit

this is the profit kept in the company rather than being paid out by shareholders as a dividend sales revenue - total cots

Net current assets

current assets - current liabilities shows the money available in the business to fund day-to-day expenditure

Mortgages

is a legal agreement that is made by you and the bank/building society to lend money at interest in order to buy a house

Owner's capital

is where the owner puts his/hers own money to invest into the business

Loans

is money that is borrowed, especially a sum of money that is expected to be paid.

Hire purchase

way a buying goods gradually. You make regular payment until you have paid the full price and the goods belong to you

Crowdfunding

practice funding a project or venture by raising money from a large number of people who contributes a relatively small amount

Debt factoring

This involves the selling of a business’s debt to a third party in order to receive cash quickly.

Peer to peer lending-

matches up people who are looking for to invest their money who want to borrowing it, paying higher interest to savers to savers and lower rates for borrowers. Find out how it works

Invoice discounting

a way for businesses to borrow money based on amount due for customers

Leasing

its a contract on paper that states that you own the property

Grants

is an amount of money given by the government to a person or organization for a special purpose

Straight line depreciation

Formula= asset purchase price-estimated salvage value/ Estimated useful life of an asset

Sstraight line deprecation is most commonly used due to…

its simplicity and consists of allocating depreciation evenly over the useful life of the asset

External sources of finances:

external sources of finance are those available from outside the business. this includes:

Advantage of sales of assets

A good way of raising funds from assets that are not needed any longer.

Disadvantage of Sales of assets

Not all businesses have surplus assets that they can sell. May be a slow method of raising funds as some assets may take time to sell.

Advantage of retained profits

Does not have to be repaid and has no interest payable.

disadvantage of retained profits

Not available to new businesses and many

advantage of net current assets

A quick way of raising money. Selling off inventory reduces the costs related to holding it.

disadvantage of net current assets

May have to accept a lower price for its inventory.