identification of sources_of_finance

Jun 27th, 2015
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Abilene Christian University
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This is money which comes from the owner/s own savings It may be in the form of start up capital - used when the business is setting up It may be in the form of additional capital – perhaps used for expansion This is a long-term source of finance

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Means of FinanceDifferent ways a business can obtain moneySources of finance can be classified into:Internal sources (raised from within theorganisation)External (raised from an outside source)Internal Sources There are five internal sources of finance: Owners investment (start up or additionalcapital) Retained profits Sale of stock Sale of fixed assets Debt collectionOwners investment This is money which comes from the owner/sown savings It may be in the form of start up capital - usedwhen the business is setting up It may be in the form of additional capital perhaps used for expansion This is a long-term source of financeAdvantages Doesnt have to be repaid No interest is payableDisadvantages There is a limit to the amount an owner can investRetained Profits This source of finance is only available for abusiness which has been trading for more than oneyear It is when the profits made are ploughed back intothe business This is a medium or long-term source of financeAdvantages Doesnt have to be repaid No interest is payableDisadvantages Not available to a new business Business may not make enough profit to invest backSale of Stock This money comes in from selling off unsold stock This is what happens in the January sales It is when the profits made are ploughed back intothe business This is a short-term source of financeAdvantage

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