In economics, the term capital is used to refer to money invested in equipment and merchandise as well as actual cash available for operating the business. In financing a business, capital means the money and the credit needed to run a business. Fixed capital is the term applied to money invested in fixtures, equipment and real estate which are called fixed assets. Working capital is the term applied to money invested in merchandise, money that is due to from customers, and actual cash on hand is referred to as liquid capital.
Lack of sufficient capital is one of the important causes of business failures. Sometimes a business with suffient capital will fail, because the owner invests too much money in equipment and buildings, and does not keep enough for working capital.
In starting a new business, a person should not be eager to own his own building or to buy expensive equipment. He must know that he can noı operate his business profitably because of a lack of working capital. A building can be rented and equipment can be obtained on some plan of payment that does not require the immediate outlay of the total amount in cash.
