Internal sources of finance

Question 1

Name 3 reasons why firms need finance

Answer 1

1. Marketing
2. Pay wages
3. Dividends
4. Rent
5. Investment

Question 2

Name 6 internal souses of finance

Answer 2

1. Personal savings
2. Sales/lease back
3. Factoring
4. Retained profit
5. Sale of fixed assets
6. Divestment

Question 3

What is sales/lease back

Answer 3

Sales/lease back is where you sell property and then rent it so you can access finance

Question 4

What is factoring

Answer 4

Factoring is where you sell debt to someone else so they owe someone else the money. However you don’t receive the full amount

Question 5

What is divestment

Answer 5

Divestment is where you stop investment in one area to move it to another area

Question 6

How long is short term

Answer 6

0-3 years

Question 7

How long is mid term

Answer 7

3-10 years

Question 8

How long is long term

Answer 8

10+ years

Question 9

Name 2 benefits of using personal savings as finance

Answer 9

1. Quick to obtain

2. Easy to obtain

Question 10

Name a disadvantage of using personal savings

Answer 10

Unlimited liability

Question 11

What is a benefit of using sales/leaseback

Answer 11

Obtain a large amount of money

Question 12

Name a disadvantage of sales/lease back

Answer 12

Long term payments

Question 13

Name a benefit of factoring

Answer 13

Recveive a lot of money sooner than if you waited for debt to be paid

Question 14

Name a disadvantage of factoring

Answer 14

Don’t recieve the full payment back

Question 15

Name 2 benefits of using retained profits

Answer 15

1. Easy to obtain

2. No risk

Question 16

Name 2 disadvantages with using retained profits

Answer 16

1. May not have profits

2. May disagree with shareholders

Question 17

Name a benefit of using sales of fixed assets

Answer 17

Can get rid of assets no longer needed

Question 18

Name 2 disadvantages with selling assets

Answer 18

1. Can take a while to find a buyer

2. Could still be useful (opportunity costs)

Question 19

Name a benefit of divestment

Answer 19

Easy to source finance

Question 20

Name 2 disadvantages with divestment

Answer 20

1. May disagree with shareholders

2. Areas could have been useful to the business