Capital is a term that includes many concepts. Various types of tangible and intangible capital are intertwined and contribute to the economic advantages and quality of life of groups around the world. Capital can be best described as an asset that generates and increases productivity, increases the value of a product or service, and provides a strategic advantage to a particular group. Although it is commonly associated with money and finance, there are multiple forms of non-monetary capital too.
Ever since Adam Smith, capitalism has not been about financial capital only. Most people believe capital to be the money or the funds that are needed to start a business or set up a company. While this is not incorrect, capital has become much more and is a broader term now which refers to so many other things that affect the financial and working capacity of an organization. A research by a dissertation help firm shows that different organizations use different types of capital in a business. This gives them a chance to manage their resources and funds in a much better way.
Organizations deal with different kinds of capital daily that includes human labor, land, water, and energy as well as machinery besides money because even if a company has money, it cannot manufacture products or sell its services without manpower and raw material. It is important to codify the financial part in a language that is now universal. There are globally accepted standards on how to count profits, assets, debts. However, we mostly talk about the other kinds of capital in the abstract, even though they may make or break us as easily as the financial.
The startup as well as established business owners need to keep in mind all the facts related to capital and its types of determining its real value for their venture. They should also consider the impact of one or more types of capital on their business and how can give them a more holistic point of view. This article discusses the 5 different types of capital to use in business and how they can help an organization manage things better.
Internal Economic Capital:
This type of capital refers to the financial capital a company has such as funds, debt, and equity. It also refers to the value of the brand of the company which is considered non-financial capital.
External Economic Capital:
This type of capital works by observing the impact an organization has on the companies that surround it. This can be best explained by considering any movement or investment in an area which will make an impact on the finances or worth of other companies within that field or area. It also takes into consideration how your company can affect the global economy.
Human Capital:
This type of capital takes into account the value of people’s knowledge, health, skills, motivation, and attitude. Companies often overlook the value of people. They are a crucial component in business and they could make or break a business if you do not hire the right candidates for the job. Examples of human capital include:
- Education
- Knowledge
- Training
- Creativity
- Strength
- Life experience
- Physical health
- Decision making
- Problem-solving
- Mental and emotional well-being
Nature Capital:
The natural resources and ecosystems are the natural capital. There are ways and means to supplement funds and having the right resources and the ecosystems can help in this regard and impact the way organizations work. Examples of natural capital include:
- Minerals
- Plants
- Soil
- Animals
Social Capital:
This looks at the relationship which people have in teams and how they communicate with each other. It also considers the combined intellectual property a company may have from the people who have worked here. Social media also plays a crucial role here and can be considered under capital as technology can be used for developing relationships with customers.
It would not be wrong to say that capital is the life-blood of a business enterprise. It is a universal lubricant that keeps enterprise dynamic by providing physical sources when applied to products and money when applied to finance.
Business owners need to understand which type of capital is important for their business and how it affects the way it is running and how it can help their business move forward. By knowing more about the types of capital and how they can be used more efficiently in the business, it becomes easy to determine where capital is required, how the resources should be used, and how a more sustainable business can be built.