Internal Sources of Finance (AQA A Level Business): Revision Note

Layla's Pet Grooming

Layla had worked as a dog groomer for six years before deciding to set up on her own. She had saved £8,000 over several years and decided to invest the full amount into her new business, Layla's Pet Grooming, operating from a converted garage at her home in Bristol.

Layla used her savings to buy a professional grooming table, clippers, dryers and a booking system. Because the business was brand new and had no trading history, a bank was unlikely to offer her a loan on favourable terms. By using her own money, Layla avoided paying interest and did not need to give anyone else a say in how she ran the business.

Within six months, Layla had a full client list and was turning a small profit. She acknowledged the personal risk - if the business had failed, her savings would have been gone - but felt confident in her skills and her local market research before committing her funds

Hartley Sports

Hartley Sports is an independent sports equipment retailer based in Leeds. After five years of steady trading, the business had accumulated £45,000 in retained profits.

The owner, Marcus, decided to use £30,000 of this to refurbish the shop, improve the website and add a click-and-collect service. Rather than approaching a bank for a loan, Marcus preferred to use the profits the business had already earned.

Using retained profit meant no interest payments, and Marcus did not need to bring in outside investors or give up any control. The refurbishment took three months and resulted in a significant increase in footfall and online orders in the following year.

The remaining £15,000 was kept in reserve for emergencies. Marcus described the approach as "spending money we've already earned, on something we know will pay off" — a straightforward investment in the business's own future with no strings attached.

Cresting Print

Cresting Print has been producing promotional materials for local businesses for over 15 years.

When the owner, Janet, decided to shift entirely to digital design services and reduce large-format printing, she realised the business was holding equipment it no longer needed.

Janet sold three large-format printers, a laminator, and a guillotine cutter to a second-hand machinery dealer for a total of £22,000. The money was used to upgrade the business's design software and hire a junior digital designer.

The sale cleared space in the workshop and removed the cost of maintaining and insuring equipment that was being used less than twice a week.

Janet acknowledged that the printers had originally cost far more than £22,000 but accepted that the lower price reflected their age.

The key benefit was speed - the sale was completed within a fortnight, giving Cresting Print the cash it needed to invest in its new direction without taking on any debt.

Orion Logistics

Orion Logistics is a delivery and warehousing company based in the East Midlands. The business owned its main warehouse outright - a large commercial unit it had bought twelve years earlier, now valued at £1.2 million.

When Orion's directors decided to expand into two new regions, they needed significant capital for new vehicles and staff. Rather than taking out a large bank loan, they sold the warehouse to a commercial property investor for £1.1 million and immediately signed a ten-year lease to continue operating from the same building, paying £6,000 per month in rent.

The sale released substantial cash without disrupting daily operations. Orion used the funds to purchase eight new delivery vans and lease a second depot.

The directors were aware that committing to monthly rent was a long-term obligation, and that they no longer stood to benefit if the property increased in value. However they felt the capital released made the arrangement worthwhile for a business in a strong growth phase

Fernwood Kitchens

Fernwood Kitchens designs and installs bespoke kitchens for homeowners across Northern Ireland. The business was profitable but frequently ran short of cash - money was regularly tied up waiting to be collected from customers or sitting in stock that took months to be used.

The owner, David, worked with his accountant to improve the way the business managed its working capital. Customers were previously given 60 days to pay their final invoice; this was reduced to 30 days, with a small early-payment discount offered as an incentive. At the same time, David renegotiated payment terms with his main supplier, extending from 30 days to 45 days.

Together, these changes freed up approximately £18,000 in cash that had previously been stuck in the business's working capital cycle. No money was borrowed and no assets were sold - the improvement came entirely from running the business more efficiently. David used the released cash to take on two additional installation jobs without needing any external finance.

Internal sources of finance are almost always cheaper and simpler than external alternatives, but they are limited by what the business already has.

In evaluation questions, consider whether the business is profitable enough to have retained profits, has assets to sell, or has inefficiency in its working capital cycle before recommending an internal source. A start-up or loss-making business will typically need to look externally instead