2.1.1 - internal finance

source of finance

the options available to a business when seeking to raise funds to support future business actions

sources of finance can be

internal and external

internal sources of finance

owner's capital, retained profit, sale of assets

owner's capital

when an entrepreneur invests their own money into a business

benefits of owner's capital

do not have to repay, no interest charges, owner maintains control, risking own savings can be motivational, no lengthy application procedures

disadvantages of owner's capital

may only be limited amounts available threat to personal finances/family

retained profit

profits kept within a business to finance future activities

retained profit advantages

avoids interest payment,does not dilute business ownership

retained profit disadvantages

only option if there is enough retained profit exists, shareholder may be unhappy if at cost of diviend payments, reduces security blanket of using retained profit for unforeseen situations

sale of assets

refers to the sale of long term or fixed assets

assets

items of value owned by a business

current assets

items owned that will change in value in short term

benefits of sale of assets

no interest charges/repayments, may be turning obsolete asset into finance, immediate lump sum cash injection

drawbacks of sale of assets

may be expensive in long run if need to lease asset back, loss of use of asset + future value, is only a one