Why Your Business Needs Both Fixed Capital And Working Capital
Joe Nicolosi
?? BUSINESS FUNDING ?Working Capital , Purchase Order Financing, Accounts Receivables Financing ?? [email protected]
As a Small Business owner, the need for capital as you continue to grow will be one that is a consistent theme. Having an understanding of Fixed Capital and Working Capital will allow you to operate with more efficiency over the long haul. So… what’s the difference between the two?
Fixed Capital
Fixed capital includes all of the tangible property owned by your business. These items typically are not sold off or liquidated quickly. Included as Fixed Capital are the long-term assets of the business such as equipment, intellectual property, real estate, commercial equipment, tools, and inventory. Fixed capital also includes investments that depreciate over time. You will find that as your business catapults, the amount of Fixed capital you have will also increase.
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Working Capital
Working capital ?is much more fluid when it comes to liquidity. A good formula to determine how much working capital you have, deduct what you owe (liabilities) from the value of what you have (assets). These are your liquid assets that you will be using to cover expenses and keep your business sustaining properly. As you increase your working capital, you will be able to buy more inventory and equipment, take advantage of strategic opportunities, and expand the operations of your business with adding new talent. Increasing your working capital will also allow you to increase your profitability over time.
Why You Want to Have Both
It’s great to have an abundance of fixed assets as that goes toward your valuation if you plan to sell down the line, but they won’t do you much good if you need money to cover payroll, or keep the lights turned on. With a healthy?amount of working capital , your business will be able to grow steadily. You will have sufficient money to pay all of the bills that are needed to keep your company functioning on a day-to-day basis. This also includes paying your employees and paying your taxes just to name a couple. As your business starts to gain more momentum, the profits that are made can be reinvested in the business, allowing it to grow and expand even more.
-Joe