3.2 Sources of Finance - Internal sources

Question 1

define personal funds

Answer 1

a source of finance for sole traders that comes mostly from their own personal savings

Question 2

two A, two D - personal funds

Answer 2

A
1. only the sole trader knows the amount of money
2. control for the sole trader, doesn’t need to pay the funds back (obviously)
D
1. risk for the sole trader as they could be investing their life savings
2. if the funds are not sufficient it may be difficult to start of maintain the business

Question 3

definition of internal sources

Answer 3

that comes from within the business

Question 4

define retained profit

Answer 4

profit that remains after paying dividends to shareholders and taxes

Question 5

two A, two D - retained profit

Answer 5

A
1. cheap because it doesn’t incur interest charges
2. permanent, flexible, owners have control
D
1. start-ups don’t have it
2. if it’s too low, it won’t be enough
3. a high RP could mean that there wasn’t a fair payment of dividends to shareholders

Question 6

define sale of assets

Answer 6

when a business sells their unused or unwanted assets -machinery, redundant buildings, etc.

Question 7

two A, two D - sale of assets

Answer 7

A
1. no interests charged
2. good way of raising cash from capital tied up in assets
D
1. only available for established businesses
2. it can be time-consuming to find a buyer