-internal finance-

Question 1

Def of internal finance?

Answer 1

Finance that comes from within the business via profits or assets

Question 2

Types of internal finance for start-up business?

Answer 2

Founder finance
Retained profits
Friends/family

Question 3

Why is finance needed for a start-up business?

Answer 3

Rent
Bills
Materials
Wages
Salaries
Marketing
Equipment
Furnishing

Question 4

Why is finance needed for an established business?

Answer 4

Marketing
Takeovers
Opening new stores
New product development

Question 5

Other reasons for finance being needed?

Answer 5

Where a loss is made

Unexpected orders

Question 6

Factors that influence the choice and amount of finance required?

Answer 6

What is the finance required for?
The cost of finance e.g interest/dividends.
The flexibility of finance, e.g repayments.
The organisational structure, e.g limited company?

Question 7

Benefits of financing internally?

Answer 7

No interest
No repayments
More secure, money is already there
Entrepreneur maintains control
Little delay

Question 8

Retained profit def?

Answer 8

Profit that has been made in previous years that is re-invested into the business

Question 9

Benefits of retained profits?

Answer 9

Cheap, not free.
Cost = opportunity cost for shareholders leaving profits in business
Very flexible
Shareholders control proportion retained
Does not dilute control of business

Question 10

Drawbacks of retained profits?

Answer 10

Danger of hoarding cash
Shareholders may prefer dividends if business isn’t gaining high return on investments
High profits/ cash flows would suggest businesses could afford debt

Question 11

Types of internal finance for an established business?

Answer 11

Retained Profits
Working Capital
Asset Disposals