Internal & External Sources of Finance Flashcards
Retained Profit
Internal: Part of the after-tax profits of a business that is not distributed to share-holders.
Net Current Assets
Internal: Money within the business on a day-to-day basis.
Sale of Assets
Internal: Selling assets owned by the business.
Owners Capital
External: Money from the owner/savings.
Loans
External: Money from a bank/financial institution.
Crowd-funding
External: Attracting investment from a large number of people with small individual amounts.
Mortgages
External: Long-term loan for a property purchase.
Venture Capital
External: Investment from an experienced entrepreneur like Dragons Den.
Debt-factoring
External: Selling on business debts to a debt collection company.
Hire Purchase
External: Paying to use an asset in monthly instalments, paying off at the end.
Leasing
External: Renting equipment/assets on a monthly basis.
Trade Credit
External: A period of 30 days to pay off your bills to suppliers.
Grants
External: Lump-sum of money offered by government or charitable organisations.
Donations
External: Voluntary money given by charities or social entrepreneurs.
Peer-to-peer (P2P) Lending
External: One business person lending to another in return for interest payments.
Invoice Discounting
External: Reductions offered to customers.
Internal Source of Finance
Money and finance generated from withing the operations of the business itself.
External Source of Finance
Money and finance generated from outside the business and its direct operations.
Finance
Money or capital are also used. Finance is the amount of money in the business from various sources.
Advantage of Owners Capital
No interest/debt repayments giving owner full control without owing anyone.
Disadvantage of Owners Capital
Risk of personal financial loss.
Advantage of Loans
Allows business to access large amounts of money quickly for growth or operations.
Disadvantage of Loans
Must be repaid with interest, which could strain cash flow and add financial pressure to the business.
Advantage of Crowd-funding
Can raise funds without needing traditional loans or giving up ownership, can also create a loyal customer-base early on.