Internal Finance:
Description Advantage Disadvantage
Finance needed for:
Could put a strain
The owner investing
on family and
their own money into All control kept in
Owner’s
the business. business.
personal Capital expenditure - spending on
capital / relationships.
Essential when a No delay in
Personal If business fails, fixed assets, such as equipment,
business starts up. obtaining the
savings owners lose their
Likely to invest more finance. buildings etc.
investment.
as business grows.
Personal savings.
Profit that has been
Cheap source.
Fr smaller Revenue expenditure - spending on
Doesn’t need to
generated in businesses, a
be repaid and no raw materials or day-to-day
previous years is significant amount
Retained interest.
reinvested back into may take a while to expenses, such as wages, utilities.
profit Owner keeps
the business. build up.
control and
Shareholders don’t Shareholders may
receive extra profit.
ownerships isn’t
prefer dividends. Internal finance - finance comes from
diluted.
Selling business inside the business, e.g. owner’s
assets that are no
longer needed. Amount of money Only businesses capital, retained profit, or sales of
arrangement may be raised depends with spare assets
Sale of made: on the asset sold. can use this
assets Sells an asset, Rents . source.
the premises, Sells Ownership not Can take a long
the prime retail diluted. time.
property.
External finance
Source: Definition: Advantage: Disadvantage:
Little to no interest.
Family and Obtaining finance form Damaged relationships.
Potentially flexible in
friends family and friends. Potential interference.
terms of repayments.
Description Advantage Disadvantage
Finance needed for:
Could put a strain
The owner investing
on family and
their own money into All control kept in
Owner’s
the business. business.
personal Capital expenditure - spending on
capital / relationships.
Essential when a No delay in
Personal If business fails, fixed assets, such as equipment,
business starts up. obtaining the
savings owners lose their
Likely to invest more finance. buildings etc.
investment.
as business grows.
Personal savings.
Profit that has been
Cheap source.
Fr smaller Revenue expenditure - spending on
Doesn’t need to
generated in businesses, a
be repaid and no raw materials or day-to-day
previous years is significant amount
Retained interest.
reinvested back into may take a while to expenses, such as wages, utilities.
profit Owner keeps
the business. build up.
control and
Shareholders don’t Shareholders may
receive extra profit.
ownerships isn’t
prefer dividends. Internal finance - finance comes from
diluted.
Selling business inside the business, e.g. owner’s
assets that are no
longer needed. Amount of money Only businesses capital, retained profit, or sales of
arrangement may be raised depends with spare assets
Sale of made: on the asset sold. can use this
assets Sells an asset, Rents . source.
the premises, Sells Ownership not Can take a long
the prime retail diluted. time.
property.
External finance
Source: Definition: Advantage: Disadvantage:
Little to no interest.
Family and Obtaining finance form Damaged relationships.
Potentially flexible in
friends family and friends. Potential interference.
terms of repayments.
