Internal finance

Question 1

List the 4 types of finance

Answer 1

external
internal
long-term
short-term

Question 2

List the 4 types of internal finance

Answer 2

• retained profit
• sale of assets
• sale of inventory
• owner’s savings

Question 3

what is retained profit

Answer 3

it is profit kept in the business after owner’s have been given their own share of profit

Question 4

explain sale of assets

Answer 4

this is the sale of assets that the business no longer needs such as redundant buildings

Question 5

explain sale of inventory

Answer 5

it is the selling of finished goods or unwanted components

Question 6

explain the source of finance: owner’s savings

Answer 6

this is finance directly invested from owners savings

it applies sole traders and partnerships only as their businesses are unincorporated meaning owners and business are not separate

Question 7

retained profit: ads and disads

Answer 7

Ads:

• no interest charged
• does not need to be paid back

Disads:

• owners may feel as if they’re profit is threatened and may resist making the decision of using retained profit as a source of finance
• profit may be too low
• new businesses do not have retained profit

Question 8

sale of assets: ads and disads

Answer 8

Ads:

• makes better use of capital in the business
• does not become a debt unlike a loan

Disads:

• set price for selling of assets may not be reached
• takes time to sell asset
• new businesses will not have extra assets to sell

Question 9

sale of inventory: ads and disads

Answer 9

Ads:
-reduces inventory costs as well as freeing up storage

Disads:
-risk of business unknowingly selling a product in demand thus business does not satisfy customer desires

Question 10

owner’s savings: ads and disads

Answer 10

Ads:

• available quickly
• no interest charged

Disads:
-increases risk taking of owners