Describe Sources of Internal and External Finance for a Selected Business, Unit 2 P4
Describe sources of internal and external finance for a selected business
For a business to run successfully on a daily basis it needs finances. Success comes when a business expands, reinvests and uses human recourses to run. Bentalls need money to run their business effectively and successfully. It needs finance for its daily running of the business for example, paying staff wages, paying bills for electricity and rent, paying taxes on time and ordering stock regularly. For a long term goal, Bentalls would need the finance to expand their business, franchise, buy new equipment and or buy new buildings around the current building to expand the area and possible generate more sales with new renting for high street retailers. Bentalls can acquire finance from two possible directions. These are internal and external sources of finance.
Internal sources: Internal sources of finance are money that can be generated within the business itself. There are many methods to gain money from within a business itself. One of these is Owner’s savings which the owner of Bentalls can provide if Bentalls cannot find other ways to gather finance. This is usually if the bank is unwilling to lend for any reason such as bad repayment history. There are good and bad points about using the Owner’s savings. One of the good points is that the company doesn’t have to repay anyone back. The bad thing about this is that it may not be enough to efficiently run the business and or be a good investment. Most savings are not as large as assumed and so it may not be as helpful as a bank loan.
Another method is retained profit. Retained profit is an amount of profit which is kept aside for reinvestments for the business. It is an important and significant source of finance for an established profitable business. Retained profit does not
For a business to run successfully on a daily basis it needs finances. Success comes when a business expands, reinvests and uses human recourses to run. Bentalls need money to run their business effectively and successfully. It needs finance for its daily running of the business for example, paying staff wages, paying bills for electricity and rent, paying taxes on time and ordering stock regularly. For a long term goal, Bentalls would need the finance to expand their business, franchise, buy new equipment and or buy new buildings around the current building to expand the area and possible generate more sales with new renting for high street retailers. Bentalls can acquire finance from two possible directions. These are internal and external sources of finance.
Internal sources: Internal sources of finance are money that can be generated within the business itself. There are many methods to gain money from within a business itself. One of these is Owner’s savings which the owner of Bentalls can provide if Bentalls cannot find other ways to gather finance. This is usually if the bank is unwilling to lend for any reason such as bad repayment history. There are good and bad points about using the Owner’s savings. One of the good points is that the company doesn’t have to repay anyone back. The bad thing about this is that it may not be enough to efficiently run the business and or be a good investment. Most savings are not as large as assumed and so it may not be as helpful as a bank loan.
Another method is retained profit. Retained profit is an amount of profit which is kept aside for reinvestments for the business. It is an important and significant source of finance for an established profitable business. Retained profit does not