Sources of finance common mistakes

Common mistakes

• Confusing retained profit with retained earnings

  Assuming retained profit is the same as retained earnings.

  Fix itRetained profit is the profit kept in a single accounting period, whereas retained earnings is the cumulative total of all retained profits over time.

• Assuming all loans have the same interest rate

  Thinking all bank loans are cheaper than equity.

  Fix itInterest rates vary by lender, credit rating and terms; compare rates and consider the cost of capital.

• Assuming a bank loan is always the best option

  Thinking that a bank loan is suitable for all businesses regardless of circumstances.

  Fix itThe suitability of a bank loan depends on factors such as credit history, cash flow, collateral, and the business’s growth plans; other sources may be more appropriate in certain situations.