3.1.1

Internal Finance

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Internal Sources of Finance

Internal sources of finance describe the money that is created or raised within a business. The business doesn’t need any other stakeholder to get access to this money.

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Retained profit

  • This is the profit that the business has effectively saved whilst it has been operating (running).
  • Retained profit is a cheap source of finance because a business does not have to pay any interest.
  • Retained profit is limited. A business can only spend profits that have been saved.
  • Retained profit may not be high enough to fund big, long-term projects.
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Selling assets

  • A business can sell its assets to raise cash. For example, a business can sell buildings or machinery that they do not use.
  • They are usually a cheap source of finance because the business does not have to pay interest.
  • However, selling assets can harm a business’ operations.
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Personal savings

  • This is personal money that is invested by the owner of a business.
  • It is most relevant for start-up businesses, in which the entrepreneur has saved up to fund his business venture.
  • A downside is that it can be very risky for an entrepreneur to put a significant amount of their personal savings into a business. They may not be able to afford this.

Jump to other topics

1Exploring Business

2Marketing Campaigns

3Business Finance

4International Business

5Principles of Management

6Business Decision Making

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