- Internal sources of finance come from inside the business
- Retained profit is profit that has been retained… obviously
- (It’s kept by the business instead of being dished out to shareholders)
- Sale of assets is when assets are sold
- Lease of assets is when assets are leased (rented out, loaned, borrowed…)
- Personal savings are savings belonging to the shareholders, who may decide to invest them in the business
- (If you don’t know, an asset is something valuable a business possesses… like one of their most awesome machines)
- This basically consists of share capital
- It’s money people invest in a business on the stock exchange
- Investing means you buy shares, meaning you become a shareholder – one of the owners, and you get to make company decisions (if you own enough shares!)
- You also get dividends, which are sums of money paid out to shareholders each month
- The stock exchange is where shares are bought and sold, and I have a feeling things are actually much more complicated than I’ve explained here…
- Bank loans are external, as are any other sources that aren’t from within the business
Risk / Reward
- Well, I like internal sources of finance… and I like external sources of finance…
- But which is better? There’s only one way to find out!
- Internal sources are nice and safe, and you can do anything you want with them
- On the other hand, they’re not always available (what if the owners don’t have any personal savings?!)
- External sources of finance are abundant – you can always get some if you can convince people to invest in you… but there are strings attached!
- You might have to pay the money back! Your new shareholders could be really bossy! You could somehow find yourself in some sort of legal trouble!
- Those are some advantages and disadvantages… I’ll let you decide what’s best – it might even be an exam question!
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