Retained profit

• What is retained profit

  profit that has been generated in previous years and not distributed to owners is reinvested into the business
• Why is retained profit a cheap source of finance

  It does not involve any borrowing
• Benefits of retained profit

  flexible - the amount of retained profit to reinvest is chosen by the owner and can decide where to reinvest

  No debt - May not use loan capital which means no interest has to be paid which means there are no liabilities
• Drawbacks of retained profit

  Reduced dividends for shareholders - less profit given to shareholders which leads to less dividends which can mean unhappy shareholders

  slow process - can take a long time to gain enough profit that can be reinvested into the business and especially for small businesses or businesses that have just started