Internal Sources of finance

• These are funds that can be raised from within the business
• Internal sources of finance include:
• Funds raised through the sell of goods and services (products) during a business’s normal operations
• Retained earnings-this is when funds are ploughed back into the business for example in companies this may be in the form of what are called reserves e.g. General Reserves etc
• This is the most popular source of finance in most businesses more especially sole traders
• The sale of fixed assets that a business owns.
• This might be coupled by a sale and leas back strategy where the business immediately leases back the assets from the seller so that it can keep using them
•  Additional injections by current owners are sometimes considered an internal source of finance even though some authorities treat them as an external source of finance
• Depreciation-these is when amounts are set aside to cover the depreciation of an asset.
• Although they are treated as an expense in the Profit and Loss Account depreciation is actually a source of finance
• It represents funds that are accumulated by the business for the purpose of covering for the depreciation of assets.
• Increasing creditor’s payment days and decreasing debtor’s days
• Increasing creditors and decreasing debtors
• Reducing the amount of stocks held by the business

To access more topics go to the O Level Business Notes page.