GCSE Business Studies Revision: Internal: retained profit, selling assets (With Mock Questions!)

Hello, amazing students! 👋

Today we’re focusing on internal sources of finance, specifically retained profit and selling assets. These are key concepts in GCSE Business Studies, and understanding them will help you in your exams. Let’s break this down so you can feel confident about answering any questions on this topic! 😊💡

What are Internal Sources of Finance? 🤔

Internal sources of finance are funds that come from inside the business. Businesses use these sources when they want to avoid taking on debt or raising finance externally. Two key internal sources are retained profit and selling assets.

Key Learning Items 📚

Here’s what you need to know:

✅ Retained Profit - This is the money that a business has left over after paying all its expenses, taxes, and dividends to shareholders. Instead of distributing all profits, businesses can reinvest them into the company to fund new projects, expansion, or improve cash flow. The best part? There’s no debt involved, so the business keeps control.

✅ Selling Assets - Sometimes, businesses sell off assets (things they own, like machinery, vehicles, or buildings) that they no longer need to raise funds. This can generate quick cash to pay off debts or invest in new opportunities. However, selling assets means the business no longer owns them, which could impact future operations.

What You Need to Demonstrate 📝

In your exam, you should be able to:

✍️ Clearly explain what retained profit is and how businesses use it to fund growth or pay for new equipment.
✍️ Describe the process of selling assets and why businesses might choose this method of raising finance.
✍️ Discuss the advantages and disadvantages of using retained profit versus selling assets.
✍️ Understand how these sources compare to external sources of finance, like loans or issuing shares.

Key Things to Remember Before the Exam! 🧠

🔑 Retained Profit - This is a great source of finance because it avoids debt, but it’s only available if the business is making a profit.
🔑 Selling Assets - A quick way to raise cash, but once an asset is sold, it’s gone for good!
🔑 Advantages and Disadvantages - Be ready to weigh up the pros and cons of each method. For example, retained profit maintains control but might limit dividends for shareholders. Selling assets generates cash but can weaken the business in the long run.
🔑 Stay Calm and Confident - You’ve studied this, and you’re ready to ace your exam. Trust yourself and take your time. 💪

Mock Questions for You! 🎯

Q1 - What is an advantage of using retained profit as a source of finance?

a) It involves taking on debt
b) It maintains full control of the business
c) It requires selling shares
d) It can only be used by large businesses

Q2 - What is a disadvantage of using retained profit?

a) It is a quick way to raise finance
b) The business may not have enough retained profit available
c) It reduces the number of assets the business owns
d) It increases the business’s liabilities

Q3 - Why might a business choose to sell assets?

a) To buy new shares
b) To raise cash quickly without taking on debt
c) To expand their asset base
d) To avoid paying taxes

Q4 - Which of the following is an example of an internal source of finance?

a) Bank loan
b) Retained profit
c) Venture capital
d) Issuing bonds

Q5 - What is one disadvantage of selling assets to raise finance?

a) The business has to pay interest
b) The business may lose valuable resources
c) It reduces profits
d) It involves issuing new shares

See more questions in our full Q&A Business Studies Booklet

You’re doing an awesome job! Keep practicing and reviewing these key points, and soon you’ll be fully ready to ace any question on internal sources of finance. Stay positive, keep revising, and remember—you’ve got this! 🌟📚 Good luck! 🙌