Capital
Capital is the money and assets you use to build, run and grow your business. Here's what it means.
Published Thursday 23 July 2026
Table of contents
Key takeaways
- Capital is the money and assets you use to build, run and grow your business. It can also mean the net worth, or book value, of your business.
- The main types are working capital, equity capital and debt capital, with fixed and trading capital covering longer-term and day-to-day needs.
- Working capital is your current assets minus your current liabilities, and it shows whether you can cover short-term costs.
- Businesses raise capital from retained profits, debt such as loans, and equity from investors.
What is capital in business?
Capital in business is the money and assets you use to build, run or grow your business. It can also mean the net worth, or book value, of your business, which is what you own minus what you owe.
You put capital in to keep things moving, whether that's buying stock, paying staff or investing in new equipment. The more clearly you can see it, the easier it is to make confident decisions about what comes next.
Types of capital
Capital isn't a single thing. It comes in a few forms, and each one plays a different role in how you fund and run your business.
- Working capital: your current assets minus your current liabilities, showing whether you can cover short-term costs. You can read more in the Xero guide to working capital
- Equity capital: money raised by selling a share of the business to owners or investors, with no obligation to repay it
- Debt capital: money you borrow and repay with interest, such as a bank loan or line of credit
- Fixed capital: the long-term assets you hold onto, such as property, vehicles and machinery
- Trading capital: the funds you use for day-to-day buying and selling
Examples of capital and capital assets
Capital shows up in tangible and intangible forms across your business. These are some of the everyday examples you'll recognise on your books.
- Cash in the bank and cash equivalents
- Equipment and machinery
- Vehicles used for the business
- Property and premises you own
- Inventory and stock held for sale
- Intellectual property, such as patents, trademarks and brand value
Why capital matters
Capital is what you put in to get profit out. Without enough of it, even a business with strong sales can struggle to keep the doors open.
You need enough working capital to meet your everyday expenses, from wages and rent to supplier bills. When cash gets tight, keeping an eye on your working capital helps you spot problems before they turn into missed payments.
Spare capital does more than cover the basics. It funds growth, letting you hire, invest in equipment or move into a new market when the opportunity comes up.
How businesses raise capital
Most businesses fund themselves through a mix of sources rather than relying on just one. Your choice depends on how much you need, how fast you need it and how much control you want to keep.
- Retained earnings: profits you keep in the business instead of paying out
- Debt: money you borrow and repay with interest, such as loans or a line of credit
- Equity: money from investors in exchange for a share of the business
For a closer look at the trade-offs, see the Xero guide to the different types of finance.
Manage your business capital with Xero
Seeing your capital clearly makes it easier to plan, cover your costs and put spare funds to work. Xero brings your finances together in one place, so you can track cash, assets and working capital without the manual admin. Try it and get one month free.
FAQs on capital
Here are answers to some frequently asked questions about capital and how it works in a business.
What are the main types of capital?
The main types are working capital, equity capital and debt capital. Some businesses also separate out fixed capital for long-term assets and trading capital for day-to-day activity.
What is working capital?
Working capital is your current assets minus your current liabilities. It shows whether you can cover your short-term costs and keep the business running smoothly.
What are examples of capital?
Common examples include cash, equipment, vehicles, property and inventory. Intangible assets such as intellectual property and brand value count too.
What's the difference between equity and debt capital?
Equity capital is raised by selling a share of the business and doesn't need to be repaid. Debt capital is borrowed money you repay with interest, such as a bank loan.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.