Internal Finance Essay

explanatory Essay
1687 words
1687 words

In our business world, ‘Capital is the lifeblood of every business venture’ (Smith, 2012). Capital can build up company, purchases non – current assets for instance machinery or plant and paid off daily expenses for examples wages, lighting, power etc. Every company needs to have someone to manage the finance by thinking different types finance which are internal short term, internal long term, external short term and external long term financial resources. These are the main four ways which can raise the capital but those sources may relate to different repayment rate and length and the amount will be received. When the owner and manager thinking to apply internal or external financial resources they need to consider Purpose, Amount, Repayment, Interest and Security which is name as PARIS. Purpose is identifying what type of finance are suitable to required, amount is how much should be borrow, repayment is how much and when should the business pay the finance back. Interest is how much is the finance cost and security is the business need put down the business assets or personal household as a deposit before receive any finance. These are the main concepts owner and manager need to remember before apply any type of finance. (Cox and Fardon, 2009) Director and manager need to think effectively for rising capital in an effective way which includes lower repayment and the control of the company. (Gillespie, 2001) 2) Internal finance Internal finance is using the profit or capital what company earned or have and it does not involves any agreement of the directors or managers which is the owner decision. (Atrill and McLaney, 2011) There have 4 main types of internal sources which are ‘Personal saving’, ‘Retained profit’, ‘Working ca... ... middle of paper ... ...ces is suitable for their company and need to keep PARIS in the mind when apply or using any type of finance. Internal finance is using what company had earned over several years but not all the business can earn profit in the first years so they need support from external finance although external finance need to pay the finance back in the future. External finance represents an important role for improving business finance the reason is the company receive huge amount of capital from bank or government in few days or weeks. Also internal finance is time consuming because the company need to wait few years to build up the retained profit and only can be used in small investment or small expands. Base on those evidences using external finance can increase the business capital in a wink time and the repayment is depends on the amount of finance the company ask for.

In this essay, the author

  • Explains that capital is the lifeblood of every business venture. every company needs someone to manage the finance by thinking different types of finance.
  • Explains that internal finance is using the profit or capital what company earned or have and it does not involve any agreement of the directors or managers which is the owner decision.
  • Explains that working capital is a day-to-day finance which can receive finance rapidly.
  • Explains that retained profit is a non-costing finance and it is the most important sources for the finance. it is free interest but does not receive any business taxation benefits.
  • Explains that external finance is the company using foreign finance to increase company capital in a short period of time.
  • Explains that bank overdraft is a short term day to day finance and interest only pay when owner bank account used for cover the amount of run out capital.
  • Explains that mortgage is using personal household or business property as deposit asking finances from the bank and will receive 70% of the belongings price. it has a long repayment time period which is up to 25-30 years and the interest rate is lower when compare to bank loan and banks overdraft.
  • Explains that venture capital is a capital for supporting new entrepreneur to start their business. funder usually provides over £250,000 to support new potential growth firms who don’t have enough finance to begin.
  • Concludes that capital is the soul of the business and if the company runs out of money, it will be closed down in the future.
  • Explains that using internal finance is flexible, free decision marking, and does not involve third parties. the owner of the business has a flexible adjustment which allows them to shift the payment to next month.
  • Explains the advantages of using external finance: it allows small firms to increase their economic scale by growing into large companies; it reduces the time of a firm to expand their business, relocate their position in the market, and increase customer satisfaction.
  • Explains that banks allow customers to choose 3 different time periods of bank loan which are short term, middle term and long term because this sources time period is settled for 2 – 30 years.
  • Explains that share capital is the most common method in public limited company to improve finance.
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