INTERNAL SOURCES OF FINANCE

Question 1

Internal Sources of Finance

Answer 1

Money obtained from within the business. It is easier to access if the business is already established.

Question 2

Types of Internal Sources of Finance

Answer 2

• Personal Funds
• Retained Profit
• Sale of Assets

Question 3

Personal Funds

Answer 3

Key source of finance for sole traders. The money comes from the owner’s personal savings.

Question 4

Advatanges of Personal Funds

Answer 4

• Owner knows exactly how much money is availabke
• Maximized control over the business
• Shows personal commitment
• Don’t need to pay funds back to any financial instituion or investors.

Question 5

Disadvantages of Personal Funds

Answer 5

• Large risk –> Can put a strain on family or personal life
• If the savings are not sufficient it can be dificult to start and mantain.

Question 6

Retained Porift

Answer 6

Money that is left after the business has paid out dividends to its shareholders. The money is re-invested into the bsuiness for growth purposes.

Question 7

Advantages of Retained Profit

Answer 7

• Flexible –> Used how the business wants
• Cheap –> Does not incur intrest charges
• Permanent –> Does not have to be repaid
• Control –> No interference with financial instituions

Question 8

Disadvantages of Retained Profit

Answer 8

• Startups don’t have any retained profit.
• If too low, it won’t be sufficient for growth
• High retained profit means that very little or nothing is payed to shareholders. Not attractive to potential stock buyers.

Question 9

Sale of Assets

Answer 9

Selling off unwanted or unused assets to raise funds.

eg. Obsolete machinery, redundant building, excess land or equipment

Question 10

Advantages of Sales of Assets

Answer 10

• Good way of raising cash from capital that is tied up in assets that aren’t being used.
• No intrest costs

Question 11

Disadvantages of Sales of Assets

Answer 11

• Only available to established businesses
• Time consuming to find a buyer
• DecreasedCollateral