The Need For Capital Important Guidelines
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Do you need capital for your business? First, let's explore the concept of capital and see what it is all about. Basically, you need capital in order to produce certain goods or in order to create and maintain the proper environment for offering certain services. The study of economics will reveal far more details about the role of capital and why business owners need capital when starting up. Let's look at capital from an accounting point of view. We have two types of capital: fixed capital and working capital. Fixed capital can be interpreted as fixed assets. You need capital in order to produce something and sell it in the future.

That is how capital is converted into cash. If you want to take a look at your fixed capital, view the asset side of your balance sheet. You need capital such as trucks, trailers, machinery or even buildings in order to create a revenue-generating environment. If you do not have an asset side on your balance sheet, you can ask your accountant for an asset listing, or you may have even created that listing yourself, if you already have a hands-on approach to accounting. Working capital, however, is the capital used in everyday-operations when running your business. Raw materials and inventory are considered assets (fixed capital).

Aside from assets, having some working capital (or on hand capital, as it could also be called) is extremely important as far as your everyday-activities are concerned. Take the assets you currently have, ranging from office buildings, transportation vehicles, office furniture to raw materials and subtract liabilities, such as accounts payable, and you will be left with your working capital. You need capital if you want things to function smoothly with your business, that's why it is recommended that the amount of working capital you have at your disposal is enough to ensure at least a few weeks worth of activity within your company. You need capital to avoid being off-balance. If you run out of working capital, your assets (yes, even cash), will decrease and liabilities will affect your business more and more.

Managing your working capital is not something you can earn right away, but it is a vital part of running your business. As a small business owner, you need capital when starting out. It takes money to make money. Depending on how your business develops, there may be no need for another infusion of capital in the future if your company takes off. You also need capital while growing your business. If your business grows in a way which allows you to reinvest a part of your earnings then you may not need capital from other sources in the future. In some cases, however, a regular influx of external capital is required in order to keep things on the right track at the beginning.

It is not wrong to need capital. If the payback of that capital can be supported as your business develops and your profits increase, then your risk is justified. In some cases, collateral secures the capital, and you are not actually risking anything unless you reach a point where you cannot make payments, in which case the assets will be taken away from you. And you need assets in order to continue the production process, so that you need to exercise prudence and avoid potentially unpleasant situations.

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