2.1 – Raising Finance
2.1.1 – Internal Finance
Internal finance Internal sources of finance refer to the funds used within a
business to fund expansion or growth
Owner’s capital When an entrepreneur invests their own money in a business
e.g. from personal savings
Personal savings When an entrepreneur invests their own money in a business
e.g. from personal savings
Retained profit Profit kept within the business from profit afer tax to help
finance future acivity
Sale of assets A method of raising short term finance by disposing of business
assets in return for cash
Owners Capital: Personal Savings
When an entrepreneur invests their own money in a business e.g. from personal
savings
Owners capital is how much the owner has invested in the business
Owners capital shows the proporion of the business’ assets that are owned by the
business owner rather than creditors
Remember:
o Assets are items owned by the business e.g. stock is a current asset that will
stay in the business for less than a year
o Creditors are people who the business owes money to e.g. the bank
Sources of finance commonly used by entrepreneurs:
o Cash and investments
o Redundancy payments
o Personal credit cards
o Re-mortgaging
o Inheritance
Don’t have to repay May be limited amounts available
No interest charges Threat to personal finances and
Owner(s) maintain control family
Risking own savings is moivaional
Don’t have to go through lengthy
applicaion procedures
Retained Profit
Profit kept within a business from profit for the year to help finance future aciviies. The
most important and significant source of finance for an established, profitable.
Cheap (though not free): the ‘cost’ Danger of hoarding cash rather than
of retained profit is the opportunity using it
cost for shareholders of leaving Shareholders may prefer dividends
profits in the business if the business is not achieving
Very fexible: management control sufficiently high returns on
how they’re reinvested investment
Do not dilute the ownership of the
company
2.1.1 – Internal Finance
Internal finance Internal sources of finance refer to the funds used within a
business to fund expansion or growth
Owner’s capital When an entrepreneur invests their own money in a business
e.g. from personal savings
Personal savings When an entrepreneur invests their own money in a business
e.g. from personal savings
Retained profit Profit kept within the business from profit afer tax to help
finance future acivity
Sale of assets A method of raising short term finance by disposing of business
assets in return for cash
Owners Capital: Personal Savings
When an entrepreneur invests their own money in a business e.g. from personal
savings
Owners capital is how much the owner has invested in the business
Owners capital shows the proporion of the business’ assets that are owned by the
business owner rather than creditors
Remember:
o Assets are items owned by the business e.g. stock is a current asset that will
stay in the business for less than a year
o Creditors are people who the business owes money to e.g. the bank
Sources of finance commonly used by entrepreneurs:
o Cash and investments
o Redundancy payments
o Personal credit cards
o Re-mortgaging
o Inheritance
Don’t have to repay May be limited amounts available
No interest charges Threat to personal finances and
Owner(s) maintain control family
Risking own savings is moivaional
Don’t have to go through lengthy
applicaion procedures
Retained Profit
Profit kept within a business from profit for the year to help finance future aciviies. The
most important and significant source of finance for an established, profitable.
Cheap (though not free): the ‘cost’ Danger of hoarding cash rather than
of retained profit is the opportunity using it
cost for shareholders of leaving Shareholders may prefer dividends
profits in the business if the business is not achieving
Very fexible: management control sufficiently high returns on
how they’re reinvested investment
Do not dilute the ownership of the
company
