Edexcel AS/A Level Business - Theme 2.1.1 Internal Finance Questions With Correct Answers Graded to Pass

Internal finance - Money generated by the business or its current owners 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. Advantages of Owner's Capital - - No repayment - No interest charges - Maintenance of control - Motivational - There is no lengthy applications Disadvantages of Owner's Capital - - May be a limited amount of money provided - There are threats from personal finance and family 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. Advantages of Retained Profit - - Avoids interest payments - Does not dilute the business ownership Disadvantages of Retained Profit - - Only can do if there is sufficient profit - There are dividends on shareholders. - Reduces the security blanket.