With business capital, a business owner can operate a business such as with funds for paying the bills and with computers for storing the files. The term “business capital” is used to refer to the cash and the assets of a business. The cash could be the petty cash that is stored in the office and also the money in bank accounts. The purpose of the cash for a business is to have a financial resource to use to pay the bills and to purchase more assets. The assets are used to generate revenue such as from the sale of manufactured goods.
The assets of a business include the furniture, buildings, vehicles, machines, raw materials and intangible assets. A patent can be sold, which is an exchange that can be used to accumulate more cash. Some assets can depreciate in market value because the asset cannot be sold for the original amount that had been paid to purchase the asset such as furniture or a vehicle. An asset could be sold for more or less than the market value of that asset.
Collateral can be used for financing the operations of a business. The value of a building or equipment can be used as an amount that could be collected by a lender if a company manager was unable to make the payments for a loan. The assets could be sold, which would provide a financial resource for paying a lender. Without the assets, the manager would probably not be able to continue with all the business operations and may be forced to file for bankruptcy.
The intangible assets have a value and can be sold such as a patent on an innovative process. The information about an intangible asset is documented on paper and in files. The difference between an asset, such as a machine, and an intangible asset, such as a brand name, is a crucial factor for assessing the value of an asset. A popular brand name can be used to attract new customers, which would help a local manager to benefit from the national marketing campaigns from a large corporation.
The value of an asset can depreciate because that asset cannot be sold for the original price of that asset such as a vehicle or an injection molding machine. A vehicle and a machine have a service life, which is usually the total number of miles or total number of parts. A deduction for the depreciation expense is used to adjust the value of an asset. The value of a vehicle is calculated by deducting the total amount for depreciation from the original purchase price.
The investment capital of a business is the amount of funds that have been used to purchase investments such as shares of stock from other companies. The shares of stock can be used to earn dividends and are an important aspect of business capital because business managers are concerned with earning a profit. The funds for a business should be used to earn revenue such as from rent, dividends and from sales. There should be enough funds to pay the bills but any excess funds should be invested to earn revenue. Business capital is used to generate revenue and profits for a business.