2.1.1 Internal finance

• Economic variables - features of an economy which have effects on business and consumers.
• Internal finance - the raising of capital from within the business.
• Owners capital - a source of internal finance provided by the owner of a business.
• Retained profit - when profits are re-invested into the business to be used as finance.
• Sale of assets - a type of internal finance which involves selling the businesses resources.
• Advantages of owners capital:

  • no interest - cheaper
  • owner can keep control of business (no shares lost)
  • improved cashflow
• Disadvantages of owners capital:

  • potential damage to personal finances
  • opportunity cost
• Advantages of retained profit:

  • no interest - cheaper
  • keep full control of business
• Disadvantages of retained profit:

  • opportunity cost
  • shareholder dissatisfaction (if Ltd or PLC)
• Advantages of sale of assets:

  • potential of lease back if needed
  • no interest
  • if asset is unused, no loss to business
  • immediate injection of cash
• Disadvantages of sale of assets:

  • loss of asset
  • can take time to sell