Internal Finance - Sources of Finance, Accountancy and Financial management Video Lecture | Accountancy and Financial Management - B Com

hello and welcome to this video on
internal sources of finance let's
consider you are starting a business now
on to start a business you're going to
buy premises you're going to need to
employ some staff buy some stock
essential you're going to need some
money to get started well where's that
money going to come from well you might
badger your parents maybe it sells
something that you already own perhaps
you might pay these guys a visit or if
you're really desperate crack open some
of your piggy banks ultimately you need
some money if you're going to get
started or expand your business and we
call that sources of finance sources of
finance are the options available to a
business when seeking to raise funds to
support future business actions for a
startup that might be generating money
to establish the business or for an
existing business it might be to fund
growing the business or maybe
introducing a new strategy like
relocating to a different committees in
this video we're going to look at
internal sources of finance and in
particular personal savings retain
profits and asset sales when considering
sources of finance there are two broad
categories internal and external
internal sources of finance our funds
from within the business whereas
external are funds that come from with
outside of the business in this beer
we're focusing on internal source of
silence silence of funds that come from
within the business let's start to work
through our three types of internal
finance the first one is owners capital
or personal sources and that's when an
entrepreneur invest their own money in a
business and owners capital is how much
the owner has invested in the business
so owners capital shows us the
proportion of what the business owned
the assets that are owned by the
business owner rather than paid for by
an external source and remembering hear
that assets are items owned by the
business and creditors are people who
have lent the business money
typically entrepreneurs might source
this from cash savings they have or
investments they've made previously
perhaps is the baby made redundant many
young players use that as an opportunity
to set up a business in Harrington since
personal credit cards or maybe taking
out a bigger loan against their house
and then using that money to start a
business for example the other player
who's up this business used earnings
they'd received from a previous job as a
management consultant to start their
startup so what's good and bad will the
benefits of using your own savings you
don't have to repay anyone there are no
interest charges you maintain control of
the business can be motivational could
you've really got your own money on the
line you're going to try hard and
there's no lengthy application
procedures on the downside you might
only have a limited amount simpler it
also might threaten maybe your personal
finances or if you have a family and
your remortgaging then personally might
have an affair and effect on them let's
move on now to retained profits retain
profits are property kept within a
business from profits for the year a key
term you might want to look up and that
helps finance future activities so this
is important and significant for
businesses that are established and have
been running for a while so they do have
previous prophets that they can retain
keep and then use to fund any future
projects for expansion so for example of
the business made a profit in year one
of 10,000 pounds they could use that
retained profits to fund maybe buying a
new factory for 10,000 pounds in year to
the benefits it's relatively cheap
although it's not free there is
opportunity cost what could you have
done instead with that profit perhaps
you could have played it out to
shareholders it's very flexible in that
management can control how much is
reinvested shells can have an opinion or
Apple the proportion that should be used
and again it doesn't change the
ownership of the company because it's
coming from profits made previously it's
not about changing the ownership of the
business
downsides well there might be a danger
that you hoard cash try and retain and
keep hold of lots of profits rather than
using it and secondly shelled is my
preferred dividends rather than actually
using that money to reinvest and retain
it within the business the final
internal source of Finance is sale of
assets and this involves selling items
of value that are owned by the business
and normally here it's not talking about
how to stock or anything like that and
also normally talk about non current or
fixed assets so assets that I'd like to
stay in the business for a long period
of time machinery vehicles those kinds
of things so these assets can be sold in
order to get an immediate injection of
cash and then from provide finance that
could be used for alternative purpose so
for example of a business had a had an
old factory that they weren't using
anymore they might consider selling it
would you sell your main assets no
probably not but if you had a spare us
or one that was being underutilized then
possibly selling it and using that
finance to fund something else would be
a sensible suggestion again the benefits
no interest challenges don't anything
back if the asset is obsolete not being
used or out-of-date then it might as
well sell it and use that finance often
it can be quite a large lump sum and
it's an immediate cash injection however
if you decide later on you actually need
a walk we didn't need that factory or we
didn't need those vans and you've sold
them then you might have to lease them
rent them back in the future that could
cost you in the long run you're not able
to use that asset in the future and this
is really only a one-off option you're
going to tell on us at once so for
example here this supermarket chain if
you read at the bottom they've been
selling off some of their land that they
had earmarked for new supermarkets to
raise millions of pounds to provide an
internal source of violence that they
could then use for whatever purpose they
wanted so we've looked at internal
sources of supply lapse in this video
and in particular the three types at the
bottom
you