BUSINESS FINANCE AND ACCOUNTING. THE NEED FOR CAPITAL START-UP OR VENTURE CAPITAL WORKING CAPITAL INVESTMENT CAPITAL.
START-UP CAPITAL – “Seed money” which is simply the money needed to begin one’s business, to pay your first rent, licensing fees and all costs associated with starting a business.
VENTURE CAPITAL – Started by wealthy individuals who have surplus cash but do not have time to run a company. These venture capitalists will buy shares for an average of 4-5 years and then sell them back to the entrepreneur at a profit.
DISADVANTAGES OF START-UP OR VENTURE CAPITAL
WORKING CAPITAL – The funds available to run the day to day operations of the business. Working capital is used to meet short term obligations of the business, such as purchasing goods, office supplies, paying rent and wages. It is calculated by using the equation:
Working Capital = Current Assets – Current
CURRENT ASSETS – resources that the business expects to get rid of (convert into cash) within one year or the businesses operating cycle, whichever is longer. Eg. Stock, cash, bank, accounts receivable
Current Liabilities – obligation that the business expects to pay within one year or the businesses operating cycle, whichever is longer. Eg. Accounts payable, overdraft, short term loans
How do we increase working capital?
INVESTMENT CAPITAL – Money put back into the business to foster growth and productive capacity. It may include investment in better machinery or a bigger plant (factory) for example.