Both are very important to the success of any business, and this is why it's so critical to understand the differences. In brief, working capital is the money available short term, to pay for everyday expenses such as rent, utilities, supplies and payroll for instance. Fixed capital, on the other hand, represents those long-term assets the business has at its disposable, things such as equipment, any real estate, even furnishings. So what are some of the key differences that you need to understand between the two…
Short term versus long term. As mentioned, working capital is the money on hand in the short term to handle immediate day-to-day expenses. Your fixed capital are longer-term assets that you have at your disposal but may not necessarily be all that liquid as in the case of real estate or equipment.
Their purposes. Working capital is used to keep the business running; this is your money, what you are going to use daily to pay for the itemsservices you require to keep operations flowing smoothly. Yes, fixed capital could help the business as well, but again its impact is probably not going to be immediate.
Liquidity. It stands repeating, with fixed capital if you are in fact forced to sell in a hurry, you may not get what the asset is actually worth. You need time with fixed capital to prepare for a sale and thus turn it into the cash that you may need.
At First Union, we are invested in small businesses. If you do find yourself in a situation where you may be contemplating selling off fixed assets to raise some cash, you might try working with an online lender first to procure a short term loan. Rather than try and liquidate assets that could otherwise be of value down the road, a business loan might be a smarter solution. Call today and let's see if we can help you.