Fixed Capital vs Working Capital: What’s the Difference?

This post was originally published on On Deck

Understanding capital is crucial for the stability and growth of your business. Two kinds of capital that small business owners encounter are fixed capital and working capital. They’re vital for your company’s financial well-being — but the distinction between them isn’t always clear.

Let’s explore the key differences between these two types of capital and a few strategies to manage them effectively.

What’s the Difference Between Fixed Capital and Working Capital?

Fixed capital refers to long-term assets like real estate and equipment. These types of assets are a fundamental part of your business. Investing in fixed capital can help pave the way for future growth and success.

Working capital, on the other hand, includes more liquid assets such as cash and accounts receivable. It’s important for maintaining the day-to-day operations of your business. It ensures a smooth cash flow and the flexibility needed to meet your financial obligations.

What Is Fixed Capital?

In general, fixed capital represents tangible assets that are essential to the long-term operation of your business. These long-term assets may not directly generate income, but without them, your business would not be able to provide goods or services. Fixed capital is often captured as a line item

Read the rest of this post, which was originally published on On Deck.

Previous Post

What Is a Good Working Capital Ratio?

Next Post

7 Smart Small Business Tax Planning Strategies to Help You Save Money