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Internal Sources of Finance - Coggle Diagram
Internal Sources of Finance
Retained Profits
Advantages
No need to be repaid
(Looking at you, stupid Loans and your stupid rules about interest)
No Interest to pay --- capital is within the business
Disadvantages
You're a startup? Too bad. What the heck even
is
profit for you? Lol.
OK, so you're a tiny business. Too bad for you too. Look at your meager sums of capital and summon a mount of sweat.
More profits to reinvest? That also means less payment for the owners. For an unincorporated business, this is fine, but tell this to the shareholders...
Defintion: Using whatever profit the business has gained and reinvesting it back for funding
Sales of Existing Assets
Advantages
Better use of capital tied up in the business. I mean, why keep lugging around the costs of a useless building?
Doesn't increase the debts of the business/
Disadvantages
Actually selling a long-term asset is...so hard. There are times when they'll be worth 25000 and times when they'll be worth nothing.
Moving on from that, you'll never be sure what it's worth till the very end
You're a new business. Too bad. You technically can't have a
long-term asset
if you've only been at it for two days...
Defintion: See that building that you've barely used these past ten years. Sell it, instant cash.
Sales of Stock Inventory
Defintion: You sell of the huge amounts of useless stock you have left. Easy cash.
Advantages:
Reduced Opporunity Cost of keeping inventory levels high for later use
Oh, yes, and the storage cost is reduced. You know, because there's less stuff to...store.
Disadvantages:
Must be done carefully to make sure there's
just
during a surge of interest in the very product you've sold stock of.
Owner's Savings
Exclusive to unincorporated business/startup
Advantages:
It should be available quickly, since the owner already has much prior to starting business
No interest paid, since it's directly from the owner
Disadvantages:
Usually too little to help beyond long-term assets
Risk is high due to unlimited liability exisitng