In this post we will discuss What are Internal Sources of Finance? There are two sources of finance external sources and internal sources. First, we will discuss internal sources of finance, there are five forms of the internal sources of finance
Every organization requires an adequate finance to carry the business. This finance can be generated by rising of funds from the different financial sources. They are categorized as follows.
The fund that is generated inside the business, such as funds rose from the assets or stock etc. is known as internal sources. These are in various forms of the internal sources of finance.
- Owner’s capital
- Retained Profit:
- Working capital
- Sales of the asset
- Reducing stock
Owner’s capital: The fund that is raised from the owner’s money which is in saving account or retirement account and utilized for the business purpose, it can be regarded as one type of internal sources. Owner’s capital is the primary sources of funding for most of the small industries. This also includes owner’s debit cards, credit cards, etc. this is useful in providing short term finance to the business.
Retained Profit: The amount of money from the profit that is kept aside for future activities of the business or to bare future uncertainties of the business is called retained earnings or profit. This type of source is categorized under long term financial sources because it has ability to provide the finance for more than five years.
Working capital: The source of finance that helps the organization in carrying on the day to day operations of the business is called working capital. This working capital can be treated as a short term finance generating sources.
Sales of the asset: The business can generate funds by selling old assets such as property of the business, fixtures and fittings, machineries, vehicles, etc. This type of finance source is useful when the company’s financial condition is bad and facing lot of problems from the creditors in paying interest. This type of sources helps the organization in generating long term finance sources.
Reducing stock: The business raises the finance by reducing the stock by the way of selling the shares of the business to the employees or other people. This kind of finance is often taken as short term finance but if the company sales huge amount of shares than it can be long term finance sources.
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