Internal sources of finance- page 49

Question 1

Internal source of finance

Answer 1

When an enterprise requires money

Question 2

Types of internal sources of finance

Answer 2

• Owner funds
• Retained profits
• Sale of assets
• Net current assets

Question 3

Owner funds

Answer 3

Most new owners supply most of the start-up money themselves because profit is yet to be made
Advantages- No interest and if enterprise is successful, the owner may get back money as profit
Disadvantages- The owner may not have sufficient saving to invest and if enterprise fails the owner may lose their investment

Question 4

Retained profits

Answer 4

These can used to finance the growth of the enterprise
Advantages- Money does not have to be repaid and no interest
Disadvantage- New enterprises will not be at the stage to have retained profits

Question 5

Sales of assets

Answer 5

Vehicles and premises owned by enterprise can be sold to give the enterprise cash to pay short-term liabilities
Advantages- A good way to raise money from assets that are no longer needed and may avoid the need of a loan
Disadvantages- Some enterprises may not have assets that they can sell

Question 6

Net current assets

Answer 6

This is money that is immediately available to the enterprise
Advantages- A quick way to raise money
Disadvantages- If selling off stock, the enterprise may have to accept a lower selling price