2.1.1 Internal Finance

• source of finance


  the options available to a business when seeking to raise funds to support future business actions
• Internal Source of Finance


  a source of finance from within the business
• external source of finance


  a source of finance from outside of the business
• Owner's Captial (personal savings)


  when an entrepreneur invests their own money into a business
• assets

  items of value owned by a business
• Creditors


  people who the business owes money to
• Advantages of Owner's Capital

  -Do not have to repay

  -No interest charges

  -Owner(s) maintain control

  -Risking own savings can be motivational

  -Do not have to go through any lengthy application procedures
• Disadvantages of Owner's Capital

  -May only be limited amounts available

  -Threat to personal finances and family
• Retained Profit


  profit kept within a business from profit for the year to help finance future activities
• Advantages of Retained Profit

  -Avoids interest repayments

  -Does not dilute the business ownership
• Disadvantages of Retained Profit

  -Only an option if sufficient retained profit exists within the business

  -May cause shareholder dissatisfaction if this is at the expense of dividend payments

  -Reduces the security blanket of keeping retained profits for unforeseen situations or to take advantage of new opportunities
• Current Asset


  items owned that will change in value in the short run (within one year)
• Fixed Asset


  items owned by the business that will stay within the business for more than a year
• Sale of Assets


  (more so) the sale of a long term or fixed assets
• Advantages of Sale of Assets

  -No interest charges or repayments

  -May be turning an obsolete asset into finance

  -Immediate lump sum cash injection
• Disadvantages of Sale of Assets

  -May be expensive in the long run if need to lease the asset back

  Loss of use of the asset and future value

  Is only a one off option
• Improved Management of Working Capital

  Existing capital is made to stretch further. This can be achieved through the business negotiating to pay its bills later (creditors) or work at getting cash from their customers quicker (debtors).