What is business capital?

Business capital is a popular business terminology, employed by business men. You would find that it is closely associated with business; mentioned in discussion on business, over the media, conversations, books, etc, implying that it is pertaining to business. The words that make up the terminology infact suggests so.

What do people have in mind when they employ this business term, and concept? What could they be referring to? Whose duty is it to source it, why is it considered a business necessity, and why does it vary? It is infact an important concept in business concept worth our consideration.

                      DEFINITION 

Business capital consists of many closely related things. It is the money a business man used to start his business. It is the original or initial or first fund that a business man used to sponsor the activities and processes that leads to the formation of his business.

It encompasses the net worth of a business, for business net worths have often been considered business capital. It is the owner's equity in business and the excess of assets over liability.

The resources a man actualizes, the wealth he derives, through whatever means, which is geared toward production of products is also a capital. Wealth, may include not only money, but whatever resource that is used to produce other goods, which may include, machines, plants, raw materials, buildings etc. All of those could be used to produce items, which would be sold. And all of those resources are factors of production. 

The total amount which one uses to run a business is also capital. In summary capital is whatever is used to establish a business, whatever values a business owns, and whatever items a business uses to produce items.

                A BUSINESS NECESSITY 

Consider a rich illustration: one capable of enhancing our understanding of capital.

Suppose someone wants to start a company, He would require many things to bring it to birth. He would require land on which he would erect his business. It would be the place where business activities take place and serve as a place of contact between the business and those who wants to buy directly from the company. He would also have to pay for the construction of the company. He would also need raw materials and plants or machines. And he would also register the company with the appropriate authorities. Achieving those necessities as we know requires money; land does not come free, it has to be purchased; construction isn't also a birth right it is something that you would earn by paying for it; the plants and machines you would use are sold in the market, not free, and registration requires monetary fees.

The money that is required to, and would be used to Carter to all those expenditures is what is considered capital. 

Catering to or making those expenses is a must, as we know, hence the company can never come to birth without them. All businesses ever started were started with funds. People consider it an intrinsic requirement in the formation of business. The man could not start a company without paying for all those things. That business formation requires capital, makes it a necessity. Thus why business dreamers luck around wherever they could get capital to start their business, as Ants lurk where there is sugar. When there is no capital there is no business startup. It cannot be avoided. Therefore it is something that you  need to start a business. It is foundational and now synonymous with the formation of business. 

  THE DUTY OF THE BUSINESS STARTER

That Capital is basically defined as what is used to start a business, implies that the sourcing of it is the business starters duty. What it simply means is that, if you want to start a business, it is you, that have to get your capital. No one else has this dream, or wants to start it, but you. Thus, no one but you, would gear his efforts towards sourcing for capital. There could be exceptions, where a business man goes through organisations that help him to source it, but it is basically his duty. As observation shows, most business men, are the ones that gear the most efforts towards realization of capital. At most, they begin what leads to its realization. If they never take the step, it is never sourced.

   FACTORS THAT MAKE CAPITAL VARY

Since business requires capital, what then, is the capital or fixed amount of money or wealth needed to start any business?

It may surprise you to know that we do not have the answer to this question. There is no direct answer. It is because of the nature of business.

Business formations does not have a universal capital. What it simply means is that there is no fixed amount of capital required to start a business. It varies. Business capital varies from one business to the other. What is required to start a certain business usually differs from what is required to start another. Certain factors gives room to the variation of capital. 

They include the following;

A. Size of business: Smaller businesses due to their simplicity requires small capital, irrespective of their kind and what the business would specialize or deal with, as human experience shows. But bigger businesses requires the opposite. 

B. Kind Of business: What we know about the distinguishing characteristics of sole proprietorship from partnerships is that they are smaller and simpler, thus easier to start, than partnerships, thus requiring less capital. If you want to start a sole proprietorship you require more capital than partnership. This fact is an evidence that kinds of business can affect the capital needed to start a business.

C. Location: Location can give rise to variation in capital, in that, costs of items vary from one location to another. The cost of a business plant may vary from one place to the other. Where it is expensive, it means increament in capital needed to start a business. And so is it otherwise applicable where it is not.

D. Legal requirement: Each country has its legal requirement for starting any kind of business. And they vary from one country to another. So, what is needed to start business in America, may differ from Nigeria. For instance the cost of registering a business in America may supercede that of Nigeria. 

E. Customers demand: The customers demand for every particular brand different. Where for instance, they demand that it meets a certain standard much money would be required to go for quality items that would result in quality output. 

It is good to have this knowledge, so that it could influence you to source the correct capital that you would need to start your business.

                       EXAMPLE 

One person that is worthy of mention when discussing business formation is Aliko Dangote. It is simply because He succeeded in establishing one. Therefore we can learn about business establishment from him. He is very popular, regarded as a one of Africa's most successful business men. Dangote belongs to the billionaires class, and it was his business that he derives his wealth from.

He is someone we all know. He was born in 1957, was raised a Muslim, grew up in his hometown of Kano state, and lived an upper class life. It is not surprising to us why He chose to pursue business. Dangote's household was an entrepreneurial one in nature. His grandfather, Dantata was considered  one of the wealthiest people living in Kano state, and was involved in the selling of Oats and Rice. And most of his relatives were also involved in trading. He spent much of his childhood with his grandfather. And that likely had an impact on the young Dangote. The prospects that his family, precisely grandfather, enjoyed from business obviously appealed to him. His grandfather as indicated was able to secure so much wealth through trading. Weather or not anyone told us, that fact taught the young Dangote, that business is very beneficial monetarily, and could motivate him to want to become a businessman. Weather or not, it wasn't, we are sure that Dangote had always been interested in business since childhood, because He indicated it. He said that when He was in Primary, at such a tender age He involved in the trading of Sweets to make money. 

So not only the benefits but his passion for the career might have motivated him.

His journey according to the lore, began after He graduated from College in 1977. Determined to pursue business, He chose a niche. It was importation of rice and sugar. Those commodities were in high demand and the production was low as at then according to some sources, thus why it was a wise niche for him to pursue, hence they were scarce and would be perceived as Gold and receive much patronage. He needed money to import those: to buy them from the producers hence they were not free. He was very concerned with how to secure the money. He made contemplation and opted to source it from his Uncle whom he considered capable. It wasn't easy but he convinced him to give him money, to lend him money for the business. He succeeded in securing #500, 000 loan from him and used it to start importation. He imported rice from Thailand and sugar from Brazil. He chose his village as his market, and started selling them in small amounts. The venture became successful and resulted into a money giver to him. He revealed to Forbes during interview, that sometimes he realized a profit of $10, 000 from the business. And that allowed him to repay his uncle, and continue. He continued importation whenever the ones he imported finished. One after the other, he became so successful.

With time he became so successful in the business and diversified. The rest of the story is about how he went into one venture after establishing the other. 

Let us now try to draw out lessons that we could learn from his example about capital.

                  HE REQUIRED CAPITAL

Dangote wanted to venture into importation and selling of Agricultural products. Doing that required money. He needed  to pay the owners of the products for the items he would buy from them. Importation also requires that he pays importation fees such as transportation fees from Thailand and Brazil, and importation duties or taxe to the government. He needed to pay for a space or shop where he would sell them when he succeeds in importing them, to his village, where he opted for. Doing all of those as we know requires money. Convinced about this, he did not concern himself with weather he needed money, an evidence he thought he needed it, but with how to source it. Consider, could he have started his business without catering for the expenditures and expenses involved? Could he have without that money? His story is a perfect example that supports that business requires capital to start, and that it is impossible without it. That made it something he must do. And so is it with every business person.

         HE TOOK STEPS TO GET CAPITAL

Dangote was also the person that took steps that helped him secure loan. He met with his uncle and solicited it from him. It never came easily, obviously. His uncle wouldn't want to throw away money. It was hard earned. He needed to be convinced he was channeling it into something worthy. That persuasion on his part obviously spurred him to grant him loan.

The point is that every business man has to source capital. It is their duty.

When we read the story of Dangote, we also learnt that the capital He used to start his business was different from that which others used. It was different with the amount Mark Zuckerberg used to start his business.