Understanding "Liquid Capital"

by Kori Rodley Irons | More from this Blogger

29 Feb 2008 08:45 PM

For those of us who come into our home businesses with all sorts of different skills and work experience, but maybe not a lot of actually business management experience-getting used to business terminology and understanding some of the "basics" can take some practice. Business books and articles can help, but not all of us are going to get that MBA prior to opening the doors of our small home-based businesses. One of the terms that might get bantered about a bit (especially if you are in need of it) is "capital" and it is important to understand the difference between general "capital" and "liquid capital"...

Capital refers to assets, funds and resources that you have at your disposal for your home business. Capital can refer to money, investments, property, equipment, and even, sometimes "human capital" for the bodies and workers you have to help build and work your business. "Liquid capital" on the other hand really refers to cash or investments and/or credit that you can get your hands on right away-cash that is at your disposal to be spent however, without any restrictions or strings attached.

Savings accounts, cash on hand, lines of credit-all of these can be considered liquid capital. Thinking of the word liquid can be a little confusing as it might cause you to think of what is flowing or intangible when it really refers to funds that are quite tangible. What can you get your hands on right now, today, or with minimal effort. Equity that is tied up in property or a house would not be considered liquid capital even though it is an asset. Neither would money that you could recoup if you sold equipment, product or supplies. Liquid capital is cash on hand-you could right a check for it today if you needed to.

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