What is financial capital?

Corporate finance capital is the sum of bank capital plus the amount the company puts into investments — known as production capital. These investments can be in stocks, and public and private bonds, among others.

Therefore, for the entrepreneur to know exactly how much money the company has, it is also necessary to consider the resources obtained by financial transactions. To better understand, suppose that your company has R$ 50 thousand stored in the bank, in a checking or savings account.

Imagine that you also make investments with liquidity to generate income with part of the money, and the amount saved is R$ 70 thousand, including any interest received.

So, to know what your company’s financial capital is, you need to add bank capital to productive capital. In this case, the total will be R$ 120 thousand. Despite not having the amount in hand, the amount can be converted into cash if necessary.

What is a company’s financial capital for?

The financial capital of an organization serves several purposes. It serves, mainly, so that the entrepreneur can make decisions according to the current needs of the company. For example, the money can be reinvested in the business itself.

In addition, financial capital can be used to overcome moments of unforeseen events and crises or to expand the enterprise’s market share. You will understand more about these points in the next topics.

How to use financial capital in the company?

After knowing what a company’s financial capital is and what it is for, it is worth understanding the possibilities of using these resources in a business. When the entrepreneur knows the total amount that the company owns, it is possible to make more strategic decisions.

He can, for example, make internal investments in people, machinery, creation of new products, among others. In this case, the focus is to maintain the development and longevity of the enterprise.

In addition, this can be an opportunity to expand your own business. By having robust financial capital, it is possible to define some growth strategies that, when well applied, generate capital return.

Among the possibilities are:

  • diversify sales channels, increasing digital presence, for example;
  • define new marketing projects;
  • open a franchise, if your business model allows it;
  • use technology to promote business automation, ensure more data security, increase team productivity and reduce some operational expenses;
  • acquire new business, especially competitors;
  • introduce new products and services to the market, which can increase the profit margin.

How important is financial capital in a business?

As you have seen, if the company does not have a well-organized financial capital, it may experience problems that compromise its proper functioning. In this case, even the expansion of the business can be harmed.

Check out the importance of financial capital for your company:

Helps maintain resilience in times of crisis

Although it is an undesired situation, it is common for the country to experience economic or political problems. These difficulties reflect directly on the market and can disrupt your company’s business.

If there is a crisis and your sales drop considerably, for example, you need to have financial capital to face the moment. For this reason, the availability of resources is a priority need in planning.

In this sense, companies that do not have investments are more exposed to the risk of not being able to maintain business continuity until everything normalizes. Therefore, it is essential to have enough resources to support yourself in times of difficulty.

Allows expansion of operations

Micro, small and medium-sized companies that want to expand their operations need financial capital to carry out this movement. After all, it can be based on an investment strategy and long-term vision.

So, if the company’s objective is to grow in a certain period, it can start moving financial capital. For this, it is possible to invest part of the revenues to have a return that makes it possible to stand out from the competition and increase its operations in the market.

How to increase financial capital in your company?

Have you noticed how important financial capital is for micro, small and medium-sized companies? The first step to increase it is to do a good financial planning. This process involves mapping expenses that can be reduced, for example.

Therefore, it is worth analyzing financial expenses and calling your team to define cost-cutting strategies, avoiding expenses that do not generate value for the organization. The objective is to maintain the efficiency of the resources available to the company.

In addition, it is important to assess the financial resources needed to pay expenses. If this demand is greater than the availability of financial capital, the company will need to resort to fundraising.

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