3.

2 Sources of Finance

Sources of Finance are the ways a business gets its money in order to run the business

INTERNAL SOURCES come from within the organization, from its own resources or
assets, without the help of a third party. Internal sources do not have to be repaid to
anyone, since they are funded by the organization or the owner of the organization.
Personal Funds - personal savings or provided by family and friends
+ Easy to acquire
+ No interest
+ Full control over funds
+ Do not need to be repaid
- Not enough, insufficient funds
- High risk
● Works well for unlimited liability businesses (sole traders & partnerships)

Retained Profit - profits that remain within a company after all costs and dividends are
paid
+ Free (No interest)
+ Money belongs to the business and doesn’t have to be repaid (permanent source
of finance)
+ Great flexibility and finance can be used within any purpose (bank loans are
approved for specific uses only)
- Start-up businesses don’t have retained profit
- Rarely enough as a sole source of finance in pursuit of growth & evolution
- May dissatisfy shareholders

Sale of Assets - selling unnecessary equipment and/or premises

+ Free (No interest)
+ Full control over funds
- If the company is still using it, the sale can hinder a firm’s productive capacity
- Time consuming to find a suitable buyer
● Works well for business that are about to shut down or relocate some of its
parts