Sources of Finance

• Internal finance


  1. Retained revenue

  2. Owner capital

  3. Sales of assets
• Advantaged of internal finance

  1. available quickly

  2. no interest/ repayment

  3. no loss of control
• Disadvantages of internal finance

  1. loss of assets

  2. may not be able to raise large sums
• Sourced of external finance

  1. Loans

  2. Overdraft

  3. Trade Credit

  4. Share issue

  5. Crowdfunding
• Advantaged of Loans


  1. quick and easy

  2. no loss of control/ shares
• Disadvantages of Loans


  1. Interest is charged on the amount borrowed

  2. Often secured against an asset which can be seized if

  repayments are missed

  3. Expensive
• Advantages of Overdraft


  1. Flexibility

  2. no extra charges

  3. quick and easy to manage
• Disadvantages of Overdraft


  1. bank can withdraw overdraft at any time

  2. May not be able to generate large sum
• Advantages of Trade credit

  Able to pay after a certain amount of time after purchase
• Disadvantages of Trade Credit

  Potential loss of discounts offered
• Advantages of Share Issue

  1. Very large sums of money can be raised through the sale of shares.

  2. The money does not need to be repaid.
• Disadvantages of Share Issue

  1. More dividends to be paid

  2. Loss of Control
• Advantages of Crowdfunding


  1. Quick and easy to set up

  2. Can raise large sums of money quickly
• Disadvantages of Crowdfunding


  1. No guarantee finance target will be met

  2. May take long if no one wants to invest
• Break Even point


  When all costs are equal to the revenue. Business makes no loss but no profit either.
• Margin of Safety


  The margin of safety shows the amount by which sales exceed the break even point