2.1.1 Internal Finance 💸

Question 1

What is finance ?

Answer 1

The management of investment needed to run, open and expand a business

Question 2

What are the reasons for having finance ?

Answer 2

To expand

To maintain

To start up

To buy stock

To help the business over a slow trading time - seasonal demand

Question 3

Why is debt good ??

Answer 3

It secures borrowing for your business

Question 4

What is insolvency?

Answer 4

Inability to pay debt

Question 5

Why do businesses fail?

Answer 5

Lack of cash flow

Question 6

What are the 3 sources of internal finance ?

Answer 6

Owners capital - personal savings - owners equity

Sales of asset

Retained profit

Question 7

What’s another word for personal savings ?

Answer 7

Owners equity

Question 8

What are the pros of personal savings

Answer 8

No interest

Have 100% control

Question 9

What are the cons of personal savings ?

Answer 9

 uncertainty of the amount needed - might become undercapitalised

Opportunity cost

Can only be used once

Not subject to credit checks- Easier for new PLCs to get finance

Question 10

What are sales of assets ?

Answer 10

Selling something the business owns

Question 11

What is personal savings

Answer 11

Money from owners personal account invested into the business

Question 12

How are sales of assets listed ?

Answer 12

In liquidity- how easy it is to sell

Question 13

What needs to be considered in sales of assets ?

Answer 13

Time frame and liquidity

Question 14

What is liquidity?

Answer 14

How easy it is the sell something

Question 15

What are the cons of sales of assets ?

Answer 15

Less assets on balance sheet - looks less attractive to investors

Value of asset deprecated- so you make less

Question 16

What are the pros of sales of assets ?

Answer 16

Assets have high liquidity- can raise cash fast if your business is not new

Free up trapped money

No need for third party - quicker to obtain money

Question 17

What is sale and leaseback?

Answer 17

When a business sales an asset to a business , but they have a lease in it so it stays with the previous business and can be accessed with a small fee to generate capital

Question 18

What is retained profit ?

Answer 18

Is profit after tax that is put back into the business and not return to owners

Question 19

What happens if a limited company is using retained profit?

Answer 19

Company may lead to conflict if shareholders see that dividend payments have not been paid because directors have been using the profit in the business

Question 20

What is a positive retained profit?

Answer 20

it’s flexibleThey have to be you straight away and can be saved and accumulated

Question 21

What are the two things that expenditure fall under?

Answer 21

Capital expenditure - Capital expenditure spending on items that may be used ever again

or revenue expenditure- Revenue needed to maintain and repair buildings and machines

Question 22

What are economic variables ?

Answer 22

Features of the economy which has affect on the business and consumers 

Question 23

What is internal finance ? 

Answer 23

The raising of capital from within or inside of the business

Question 24

What is personal savings?

Answer 24

Source of personal finance provided by owner 

Question 25

What is retained profit ?

Answer 25

Profit that is reinvested into the business and not paid as dividends