Internal Finance

• What is internal finance?

  Funds generated from within a business
• How does internal finance contrast with external finance?

  Internal finance comes from within, external from outside
• What are the types of internal finance?

  • Retained Profit
  • Sale of Assets
  • Working Capital
• What is retained profit?

  Profit kept after expenses and dividends
• How is retained profit used in a business?

  Reinvested for growth or to cover costs
• What are the advantages and disadvantages of retained profit?

  Advantages:

  • No interest payments or obligations
  • Maintains control and ownership

  
  

  Disadvantages:

  • Limited by business's profits
  • Not available during poor performance
• What does the sale of assets involve?

  Selling company assets to raise funds
• What are the advantages and disadvantages of selling assets?

  Advantages:

  • Quick access to cash
  • No need to take on debt

  
  

  Disadvantages:

  • May affect company operations
  • Impacts long-term growth potential
• What is working capital?

  Funds available for daily operations
• How is working capital calculated?

  Current assets minus current liabilities
• What are the advantages and disadvantages of working capital?

  Advantages:

  • Flexibility in managing short-term needs
  • No external influence or interest payments

  
  

  Disadvantages:

  • Only available if cash flow is managed well
  • Overdrawing can lead to liquidity issues
• Who is internal finance suitable for?

  Small to medium businesses with stable profits
• Why might large businesses need external finance?

  For significant amounts of capital for expansion
• What are the advantages and disadvantages of internal finance?

  Advantages:

  • No interest or debt obligations
  • Full control and ownership
  • No loss of ownership
  • Financial flexibility

  
  

  Disadvantages:

  • Limited amount available
  • Potential strain on cash flow
  • Opportunity cost of using funds
  • Risk to business stability
• What is a potential strain on cash flow when using internal finance?

  Insufficient funds for operational needs
• What is opportunity cost in the context of internal finance?

  Missing alternative uses for internal funds
• How can selling assets affect business stability?

  It may weaken long-term position if vital assets are sold