Finance1007

Firms need to obtein capital during their whole cycle of life to get introduced into the market, grow and survive. A quick and easy way to solve short-trem financial problems for most firms is internal finance, this means using sources from within the business. Also these way of finance saves companies from borrowing from a lender and having to pay back interests.

One of the easiest ways of finance on their own is by using owner's funds; the major advantage is that is a very fast way of obteining capital but on the other hand it also has a huge disadvantage, the owner might not have enough money to invest on its company, so it may be insuficient. Also is a good option because avoids interest and loans and the owner keeps complete control of the business. Owner's funds is often use when starting up the company.

When a business is performing well financially it may choose to refuse some of the profits to reinvest them on the company after paying costs and taxes, is the second way of internal finance, retained profits. One significant advantage is that there are no interest cost to pay and is a fast way. But it may not leave the business with a buffer of funds to use if there is a problem.

Finally firms can sell their own assets, such as vehicles, machinary, land, etc., to raise finance. However, this is not as quick as retained profits or owner's funds, and also we have to know that buyers can be scarce, there are advertising costs and assets may have to be sold cheaply.

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