2.1.1 Internal Finance

Long term

Owners' Capital

🔗 Using personal savings to finance the business

• Safe, low-risk approach, not a form of equity, no shares given up, keeps full control of business, maintains all decision-making power, more motivated, more commitment
• No financial cost, not a form of debt, no interest must be paid, benefit from lower costs
• Likely to be limited, leading to early financial pressures if the business doesn't initially make a profit, loss of well-being, & another source of finance may be needed in order to grow faster
• Won't benefit from added expertise

Retained Profit

🔗 Re-investing historical profits into the business (not available to start-ups)

• Safe, low-risk approach, not a form of equity, no shares given up, keeps full control of business, maintains all decision-making power, more motivated, more commitment
• No financial cost, not a form of debt, no interest must be paid, benefit from lower costs
• There's an opportunity cost, sacrificing dividends, may create conflict with shareholders
• Won't benefit from added expertise
• Likely to be limited, another source of finance may be needed in order to grow faster

Selling Fixed Assets

🔗 Selling surplus assets 📝 (e.g., spare machines or vehicles) to raise finance

• Safe, low-risk approach, not a form of equity, no shares given up, keep full control of business, maintain all decision-making power, more motivated, more commitment
• No financial cost, not a form of debt, no interest must be paid, benefit from lower costs
• Quick way to raise finance and free up space, providing you can find a buyer quickly
• Can only be used a finite number of times, only able to sell surplus assets, will eventually come to an end.
• Opportunity cost, assets could have been used for the business.
• May not receive full market value for the product, likely to have depreciated