Internal And External Finance For A Selected Business

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

Internal sources of finance

Retained Profit:

Retained profits are profits which are kept by the firm for use in future investment projects. This is a cheap source of finance since it does not require interest to be paid. Sports Direct will make retained profits from selling their goods to member of the public. If sports direct doesn’t make enough retained profits then the shareholders will be unhappy.

Savings:

Savings are what a company will make by not spending much money on goods or items they need, also if a company does ever go bankrupt then it can go to its savings and take stuff out of there to help pay things back. Sports direct will save money by putting it into their savings account so when the company do run out of money they can go to there and withdraw money to help them, also if sports direct put the prices up then they will save because they do not have to buy all the goods again.

External sources of finance:

Overdraft:

A flexible, short-term method of borrowing. It allows you to draw out more money from your account than you have in it. They usually have higher rates of interest then a loan, but can be used only when they are needed. Sports direct may need to use an overdraft because they might need extra money to help then buy a certain type of sport equipment or to be able to buy more stock due to the fact they don’t have that much money to start with.

Loan:

Allows individuals and businesses to borrow a fixed sum of money. The money has to be repaid at a fixed time (monthly) and a fixed rate of interest over a given period time. Sports direct will use a loan when they want to build a new store so they can pay for the land they wan...

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...n, repayment of VC investors isn 't necessarily an obligation like it would be for a bank loan. Rather, investors are shouldering the investment risk because they believe in the company 's future success.

Disadvantages:

Securing a VC deal can be a difficult process due to accounting and legal costs a firm must shoulder. The start-up company must also give up some ownership stake to the VC

Company investing in it. This results in a partial loss of autonomy that finds venture capitalists involved in decision-making processes. VC deals also come with stipulations and restrictions in composition of the start-up 's management team, employee salary and other factors. Furthermore, with the VC firm literally invested in the company 's success, all business operations will be under constant scrutiny. The loss of control varies depending on the terms of the VC deal.