METHODS OF SELF FINANCING

Retained Profits (plough back profits) and savings

When a business makes a profit, a proportion will generally be paid out to the owners — in the form of drawings in the case of sole traders and partnerships or dividends on shares in the case of limited companies and PLCs. The rest of the profit will be retained in the business and can be used to finance the growth of the business in the form of new investment in plant and machinery.

Features of retained profit

• This means the capital raised by the company by re-investing or ploughing back the past profits of the company.
• It is best suited for long term requirements of the business.
• It might not be suitable for fast expansion programmes.

Advantages of using Retained profit or ploughed back profit

·         It is available without about any formalities

·         Interest need not be paid

·         No capital will be tied up.

·         There is no need of repayment.