Internal Finance Essay

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.