INTERNAL SOURCES OF FINANCE Flashcards

1
Q

Internal Sources of Finance

A

Money obtained from within the business. It is easier to access if the business is already established.

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2
Q

Types of Internal Sources of Finance

A
  • Personal Funds
  • Retained Profit
  • Sale of Assets
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3
Q

Personal Funds

A

Key source of finance for sole traders. The money comes from the owner’s personal savings.

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4
Q

Advatanges of Personal Funds

A
  • Owner knows exactly how much money is availabke
  • Maximized control over the business
  • Shows personal commitment
  • Don’t need to pay funds back to any financial instituion or investors.
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5
Q

Disadvantages of Personal Funds

A
  • Large risk –> Can put a strain on family or personal life
  • If the savings are not sufficient it can be dificult to start and mantain.
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6
Q

Retained Porift

A

Money that is left after the business has paid out dividends to its shareholders. The money is re-invested into the bsuiness for growth purposes.

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7
Q

Advantages of Retained Profit

A
  • Flexible –> Used how the business wants
  • Cheap –> Does not incur intrest charges
  • Permanent –> Does not have to be repaid
  • Control –> No interference with financial instituions
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8
Q

Disadvantages of Retained Profit

A
  • Startups don’t have any retained profit.
  • If too low, it won’t be sufficient for growth
  • High retained profit means that very little or nothing is payed to shareholders. Not attractive to potential stock buyers.
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9
Q

Sale of Assets

A

Selling off unwanted or unused assets to raise funds.

eg. Obsolete machinery, redundant building, excess land or equipment

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10
Q

Advantages of Sales of Assets

A
  • Good way of raising cash from capital that is tied up in assets that aren’t being used.
  • No intrest costs
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11
Q

Disadvantages of Sales of Assets

A
  • Only available to established businesses
  • Time consuming to find a buyer
  • DecreasedCollateral
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