P4 Sources of Finance

INTERNAL

An internal source of finance means to get money from within the business.

Owners Savings

The owners’ savings is the potential owners’ own money which is normally used when starting up a business. This can be a good source of finance especially for sole traders because since the owner has been saving up for most of their life, they would have enough money to invest in the business and they don’t have to worry about paying any employees or shareholders. However, there can be a disadvantage for sole traders when using this source of finance because they must be careful when investing money as they must know their limits in case they don’t have enough money to support themselves. PLC’s (Public Limited Company) would also use this source of finance through their shareholders who each invest money into the business. There can be an advantage for shareholders who use this source of finance when investing money into the business because if the business gains a profit, the shareholders will gain a dividend which means they will each get a share of the profits they make. However, there can also be a disadvantage because if the business makes a loss, the shareholders will lose the money they invested.

Capital from profits
Capital from profits refers to the money left over after most of the profits that have been earned have been shared with each of the shareholders. There are advantages of using this source of finance because the capital that is left over can be invested to improve the business. For example, the money can be invested to expand the business or buy better equipment. Another advantage is that if the business has very high retained profit, this means that there is more chance for a return on investments. There are some disadvantages to using this source of finance because if the money is invested into the business but the