Sources of finance

Sources of finance

1. Internal

   • Retained profit
     • Does not have to be repaid
     • No interest to pay
     • New business won't have retained profits
     • Small firm profits may be too low
     • Keeping more profits in the business reduces payments to owners

2. Sale of existing assets

   • Makes better use of the capital tied up in the business
   • Does not increase the debts of the business
   • Takes time, amount raised is never certain until asset is sold
   • Not available for new businesses

3. Sale of inventories to reduce inventory levels

   • Reduces opportunity cost
   • Must be done carefully to avoid dissapointing cutomers, if not enough goods are kept as inventory

4. Owners' savings

   • Should be available to firm quickly
     • No interest is paid
   • Savings may be too low