2.1.1 Internal Finance

Question 1

Internal finance

Answer 1

From within the business

Question 2

External finance

Answer 2

From outside the business

Question 3

Owners capital / personal savings

Answer 3

How much the owner has invested into the business or the proportion of business assets that are owned by the business

Question 4

Assets

Answer 4

Items owned by the business

Question 5

Creditors

Answer 5

People who the business owes money to eg bank

Question 6

Retained profit

Answer 6

Profit kept within a business from the previous year to help fund future business activities

Question 7

Sale of assets

Answer 7

The sale of long term or fixed assets

Question 8

Advantages of owners capital

Answer 8

Do not have to repay, no interest charges, owners maintain control, risking own savings can be motivational

Question 9

Disadvantages of owners capital

Answer 9

Owners risk losing everything which can be risky for the family, may only be limited amounts available

Question 10

Advantages of retained profit

Answer 10

No interest repayments, doesn’t dilute business ownership, belongs to the business already, shareholders control proportion obtained

Question 11

Disadvantages of retained profit

Answer 11

Only an option if sufficient retained profit exists and therefore not suitable for start ups, may not be enough finance, reduces security blanket of keeping profits for unseen circumstances

Question 12

Current assets

Answer 12

Items owned that will change in value within the next years eg stock

Question 13

Fixed assets / non current assets

Answer 13

Will stay in the business for more than a year eg machinery

Question 14

Advantages of sale of assets

Answer 14

No interest charges, no repayments, may be turning obsolete asset into cash, immediate lump sum cash injection

Question 15

Disadvantages of sale of assets

Answer 15

May be expensive in long run if need to lease asset back, only one off option, only useful if business doesn’t need asset, unsuitable for startups