Why Your Business Needs Both Fixed Capital And Working Capital

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.

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…