In this piece of coursework I will be describing what internal and external sources are. I will then state which finance source Asda are most likely to use and why.
Internal sources of finance can be either from a businesses owners own saving or from the profit the business makes.
The owner of a business might have to use there own savings to start there own business, especially if they are a new sole trader. This is a person who owns and runs the business at the same time. The reason why their owners might have to start of by using their savings is partially because banks are not willing to take any risks and invest someone quickly.
Retained profit is when the money that is saved goes back to the business in order for it to grow and get even bigger. When a business makes a profit, the owners have a choice: either take out it the profit from the business by way of dividend, or reinvest it by leaving profits in the business.
Selling assets is any item that is owned by an individual or business, especially that which could be converted to cash. Examples are cash, securities, accounts receivable, inventory, office equipment, real estate, a car, and other property.
External sources of finance can be funded to help the business. They get help from a number of different external sources.
A grant is money that the government give to an entrepreneur that does not have to be paid back. The amount the government gives to the entrepreneur depends on where it is coming from. Grants help businesses when they most need the money.
Businesses often lease property machinery and vehicles (assets) for a short period of time. When businesses lease there property they make good money for it. The people that buy these for leasing/hiring pay for them and use them but do not own them.
Hire purchase means that resources can be used by the business while they are being paid for by a finance company. However, when the last payment is made the goods are not owned by the business anymore.
Issuing shares is a very good way for companies/businesses to raise finance. Small business will issue shares when they are transferring from sole trader or partnership to become limited, LTD. Limited companies are then able to sell shares. However, sometimes PLCs businesses will be able to have a new share issue and if they choose to invest a project they can.
These are people who invest in new things and usually return for a share of the owner ship. Venture capitalists provide money when banks have refused.
All banks offer loans. A loan is the same as a grant but with a loan you would have to pay the money back to the bank. So it is like borrowing, the bank will give your business a certain amount of money and you will have to pay the bank back. If this does not happen then your business can lose a lot of money and go down.
Sources which Asda are most likely to use
Owners funds are used in Asda. The manager would come to a point where he or she would have to use their own money for the business. The manager would be able to use there savings if the bank are not willing to take any risks. This way Asda can buy the things they need with the managers money such as equipment or technology.
Retained profit is when the money that is saved goes back to the business in order for it to grow and get even bigger. When Asda make profit the manager would either take out the profit from the business and spend it within themselves or use the profit to buy things for the business for example equipment.
Bank loans give Asda loans so that Asda can use the money on equipment, transport, pay there staff, training etc. Loans must be paid back to the bank, so once Asda have taken a loan from the bank they would give you a certain time to pay it back.
Asda often hire/lease property, machinery and vehicles (assets) for a short period of time with a fee cost.
When Asda are hiring or leasing property they make good money for it. The people that buy these for leasing/hiring pay for them and use them but do not own them. This money goes towards Asda and would help them gain more profit the more they hire their property. Asda hire people to deliver their stuff to customers when they order online. They also hire staff in order to serve the customers and keep the place running smoothly.
Conclusion Overall, in this piece of coursework I have described all of the sources that include internal and external. I have also spoken about the sources Asda would use.