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P4 describe sources of internal and external finance for a selected business

There are 2 main ways that businesses can access financial resources: From within the business internal source From outside the business external source Internal sources If you want to grow you small business into an large one, it is very important to invest.

So then you have to rely on your own internal sources of finance to invest in your business. Retained earnings are easy source of internal finance. They are liquid assets your profit.

Instead if the owner wants he can decide to not spend it but reinvest it in his own company. An example of current assets are stock holdings in other companies. If you invest them correctly you can finance yourself with them and pay off your debts.

P4 - describe sources of internal and external finance for a selected business/ M2

Fixed assets are not easily converted to cash like current assets. But if Vodafone has a certain time limit before they need to pay off their debt they could use these if they are able to sell them within that time gap.

These kind of assets are good to have if you want for example to renew your equipment so you just first sell your old ones.

  1. But if Vodafone has a certain time limit before they need to pay off their debt they could use these if they are able to sell them within that time gap. Stocks are attractive to some investors as hedge against inflation Disadvantages Common stock owners have corporate voting rights and control can be transferred to new stockholders when Asset Lending puts the company at risk when repayments are defaulted on.
  2. Fixed assets are not easily converted to cash like current assets. A popular form of equity financing is venture capital.
  3. Most educational establishments store two months staff salaries in a bank in case of problems, cutting into it to fund expansion plans before refilling the gap but during the period of premises expansion there is a risk. Retained profits are also kept in case the owners believe that they may have difficulties in the future.
  4. Basically Invoice Factoring means that a dedicated company takes responsibility for securing the payment from customers. However some businesses may only be required to provide much less although interest rates will reflect this depending on the nature of the company and the potential return on investment.
  5. Look at Corus here and analyse whether State Funding should be allowed for a company that is likely to go bust or whether the company should cut and run with redundancies for workers while they have assets they can sell. The common rule is to try to agree a period of grace - a few days for each repayment date to give the company a bit of leeway and reduce the stress levels should anything go wrong or there is a delay in asset or stock sales or invoice payments.

Personal savings are the backbone of many small businesses. You could maybe still have personal finances that you are be willing to be contributing to your business.

  • Certainty One important advantage is that a hire purchase is a medium term funding facility, which cannot be withdrawn, provided the business makes the payments as they are due;
  • This retained profit becomes available to use within the business to help with buying new machinery, vehicles, expanding to new premises, updating computers etc;
  • Such arrangement enables firms to take orders, make deliveries and then pay, effectively putting less pressure on cash flows to make payments on immediate purchases.

When Vodafone was created the owner often needed to use his own personal savings to start the business. External finance comes in two forms equity or debt.

Debt includes credit card purchases, bank loans or promissory notes. Equity financing happens when businesses sell of their shares of their ownership of their company to outside sources that are willing to invest.

  • Otherwise Shares as a financial asset is not as secure as profits or owner investment;
  • This is an easily accessed asset in terms of availability though owners may be loathe to invest more money in the business.

Banks are able to offer loans, business accounts, commercial mortgages and overdraft facilities based on the business plan. A company sends an request for a loan application to a bank.

Describe sources of internal and external finance for a selected business.

The bank searches thrue the data and approves or declines then the loan. If its accepted it will also determine the interest that the company has to pay back as a debt for lending the money.

  • This is called entrepreneurships;
  • No more wondering when the company is going to get paid for goods or services.

A popular form of equity financing is venture capital. Venture capital consists of people who invest in new and up-and-coming risky ventures, usually in return for a share of the ownership.