Do you want to get finance from within the business? Take the help of a financial advisor and raise finance for your business because raising finance can be pretty easy when it’s about getting it from within the business. Internal sources of finance include the money that is obtained from within the business depending on its own resources. It is a cheap source of finance and the business does not have to pay interest on it.
1) Retained profits
It is the profit after the tax that has not been returned to the owners. It is also called plowed back profit as it is reinvested into the business. Around 65% of all business funding comes from retained profit. It is the cheapest source of finance with no financial charge such as interest. You don’t have to repay it unlike, for example, a loan. However, there is an opportunity cost. Keeping more profits in the business reduces payments to the owners and conflicts might arise amongst the shareholders of a public limited company if they claim that dividends paid have been frozen by the directors in case they have used the profit in the business.
2) Sale of assets
Established business may wish to sell those assets which are no longer required by the business, for example, redundant buildings or surplus equipment. This makes better use of capital tied up in the business. This source of finance may not be available to a new business as it has no surplus assets to sell.
3) Working capital
Working capital is the amount which is used to meet the day-to-day expenses of the business. It is used to run the business and meet short-term expenses. A business needs sufficient working capital to trade in difficulty. The working capital of the business can be increased by the introduction of more cash capital by the owners, or by somebody outside the business lending the money. The working capital can help the business to meet expenses such as electricity bills and paying the creditors.