Edexcel AS/A Level Business - Theme 2.1.1 Internal Finance

Advantages of Retained Profit

- Avoids interest payments - Does not dilute the business ownership

Disadvantages of Sales of an Asset

- Expensive in the long term - Loss of asset and future value - It is an one-off option and opportunity.

Disadvantages of Owner's Capital

- May be a limited amount of money provided - There are threats from personal finance and family

Advantages of Sales of an Asset

- No interest repayments or charges - May be turning to an obsolete asset - Immediate lump sum cash injections

Advantages of Owner's Capital

- No repayment - No interest charges - Maintenance of control - Motivational - There is no lengthy applications

Disadvantages of Retained Profit

- Only can do if there is sufficient profit - There are dividends on shareholders. - Reduces the security blanket.

Source of Internal Finance 2: Retained Profit

-profit made and kept in the business It is profit after tax that is 'ploughed back' into the business. · It is the cheapest source of finance but if it is used, it cannot be returned and used again. ○ Means that they have less money to live lifestyle.

Internal finance

Money generated by the business or its current owners

Source of Internal Finance 3: Sales of an Asset

• May be able to sell unwanted assets to raise finance and to sell parts away. (Selling machinery, land premises, vehicles) • Current assets - items owned that changes the value in the short term. • Can be sold to get an immediate cash injection. • They might be pressured to sell assets because a large amount of money may be used to overcome the problem.

Source of Internal Finance 1: Owner's Capital

• the stake the owner has in the business Provides capital for own resources and is most commonly is personal savings. ○ Some have done this to save up the finance for the business. • Sources are personal and can be used by sole traders/partnerships. ○ Can introduce future capital if needed and not provided at the start-up of the business.