Business can make use of internal sources of finance. Image credit elfidental.com

Business can make use of internal sources of finance. Image credit elfidental.com

ZIMSEC O Level Business Studies Notes: Internal Sources of finance

  • These are funds that can be raised from within the business
  • Internal sources of finance include:
  • Funds raised through the sell of goods and services (products) during a business’s normal operations
  • Retained earnings-this is when funds are ploughed back into the business for example in companies this may be in the form of what are called reserves e.g. General Reserves etc
  • This is the most popular source of finance in most businesses more especially sole traders
  • The sale of fixed assets that a business owns.
  • This might be coupled by a sale and leas back strategy where the business immediately leases back the assets from the seller so that it can keep using them
  • ¬†Additional injections by current owners are sometimes considered an internal source of finance even though some authorities treat them as an external source of finance
  • Depreciation-these is when amounts are set aside to cover the depreciation of an asset.
  • Although they are treated as an expense in the Profit and Loss Account depreciation is actually a source of finance
  • It represents funds that are accumulated by the business for the purpose of covering for the depreciation of assets.
  • Increasing creditor’s payment days and decreasing debtor’s days
  • Increasing creditors and decreasing debtors
  • Reducing the amount of stocks held by the business

To access more topics go to the O Level Business Notes page.