“Capital” is a word that we hear thrown around a lot in the corporate sector, but what is capital in business and why is it important for promoting growth and success?
Let’s start by looking at the first part of this question by explaining exactly what is capital in business?
Capital refers to the resources that are available to you to increase your company’s value. This refers to the assets and net worth of the business. It keeps businesses in operation but it also gives them the leverage that they need to grow and expand.
When discussing the question of “what is capital in business?”, it’s important to emphasise that there are different types that have their own functions and meanings. These include:
Working Capital
This refers to the liquid resources, such as cash and current assets that enable the business to keep working. This will be used to pay employees and suppliers to ensure the company continues to operate healthily and as it should.
Trading Capital
This is the amount of money that is available to a company for purchasing and selling assets. This is only relevant to certain companies, such as brokerages.
Debt Capital
Companies can also acquire capital by borrowing. However it’s essential to ensure that you keep a close eye on your debts to ensure that they don’t spiral out of control, and instead become a burden.
Equity Capital
This comes in several different forms including public and private equity such as shares of stock in the company.
Why Is It Important?
When thinking about “what is capital in business”, it’s important to explain why it is important for enabling a company to grow. Essentially, capital is the resource that is used to fund the day-to-day operations of a company, but also the leverage that it can use to invest and ultimately to expand its operations.
It’s important for companies to keep an eye on their levels of capital. This can be monitored by looking at your balance sheet that shows your level of assets next to your liabilities. Spotting where and when it begins to decrease or is lacking is important for taking action that will stabilise the financial structure of the company.
If you notice that your business is beginning to struggle, you should consult the advice of a business rescue expert. Spotting the signs of trouble early on will enable you to put measures in place to recover your company.
Please don’t hesitate to get in touch with the team at Ballard Business Recovery to discuss any concerns that you may have or if you have any further queries regarding “what is capital in business”.
