Syllabus: Pearson - A Level Business
Module: 2.1 Raising Finance
Lesson: 2.1.1 Internal Finance

Introduction

The Pearson Edexcel A Level Business syllabus explicitly outlines the importance of understanding finance as part of Theme 2: Managing business activities. Section 2.1.1 focuses on internal finance — the money a business can generate from its own operations. This topic equips students with the knowledge to distinguish between different sources of internal finance and assess their suitability in various business contexts.

In the classroom, this unit connects core financial literacy with decision-making and strategic thinking. It’s highly syllabus-aligned and packed with opportunities to explore practical, real-world trade-offs.

Key Concepts

The A Level Business Specification outlines the following for 2.1.1 Internal Finance:

• Definition of internal finance: Funding sourced from within the business, without external borrowing.

• Sources of internal finance:

  • Owner’s capital (personal savings)

  • Retained profit (profits reinvested into the business)

  • Sale of assets (selling off items no longer in use)

• Advantages and disadvantages of each source:

  • Cost-free (no interest) but may be limited or opportunity-costly.

• Suitability of internal finance for:

  • Start-ups vs. established businesses

  • Short-term vs. long-term needs

  • High-risk vs. stable environments

Students are expected to apply these concepts to different business types and life-cycle stages, considering both financial and strategic implications.

Real-World Relevance

The recent growth of small independent businesses post-COVID, especially in retail and hospitality, offers rich context. Many of these start-ups initially relied on personal savings or small asset sales before scaling up.

Case snapshot:
An independent coffee shop in Birmingham used £12,000 of retained profits to fit out a new outdoor seating area. The decision avoided loan interest but limited funds for marketing in the same quarter. This trade-off became a class discussion starter on opportunity cost and reinvestment cycles.

You can also explore examples like BrewDog’s early use of founder capital and reinvested profits — before moving to equity crowdfunding later in their growth.

How It’s Assessed

Students will face questions that test both knowledge and application, such as:

• Explain questions on sources of internal finance.

• Analyse tasks comparing internal with external sources for different scenarios.

• Evaluate questions requiring a supported judgement about the best option for a specific business.

Expect 10- and 12-mark extended responses to prompt comparison, contextual judgement, and use of business examples. Students should practice using structured approaches (e.g., Point–Evidence–Analysis–Conclusion) to strengthen evaluation.

Enterprise Skills Integration

This topic offers a clear route to “learn by doing”. Students can simulate business funding decisions using fictional case studies or tools like Enterprise Skills’ Business Simulations, which feature budgeting and internal financing scenarios.

Key enterprise skills embedded here include:

• Problem-solving – identifying and assessing funding routes under constraints.

• Decision-making – choosing the most appropriate source based on risk, flexibility, and cost.

• Numeracy and financial confidence – calculating opportunity costs and reinvestment logic.

• Communication – justifying decisions to stakeholders (role-play tasks or written justification).

Careers Links

This unit provides clear links to several career pathways and Gatsby Benchmarks:

• Gatsby Benchmark 4: Strong curriculum linkage to real financial roles.

• Gatsby Benchmark 5 & 6: If paired with employer-led sessions or simulations, it models workplace decision-making.

Relevant career pathways include:

• Finance Officer or Business Analyst (internal budgeting and funding roles)

• SME Entrepreneur or Sole Trader (reliance on internal finance is common)

• Operations Manager (often tasked with reinvestment and asset decisions)

Bringing in alumni or guest speakers from small business or finance roles can enrich learning and make the topic more tangible.

Teaching Notes

Tips:

• Use real mini-case studies from your local area to create familiarity and authenticity.

• Reinforce with spreadsheets for calculating retained profit or cash availability.

• Integrate short role-play scenarios: e.g., “You’re launching a new product with only internal funds – what’s your plan?”

Common pitfalls:

• Students often confuse internal finance with personal borrowing — clarify that internal means business-generated, not externally sourced.

• Oversimplifying asset sales – challenge students to think about depreciation and strategic asset value.

Extension ideas:

• Compare internal vs. external funding in a longer growth plan scenario.

• Debate activity: Should businesses always try to self-fund before borrowing?