Difference between Equity Financing and Working Capital
Difference between Equity Financing and Working Capital
A rule of thumb, you have to keep and hold double your monthly sale amounts as working capital (WC). You can increase your networking capital on hand by retaining profits, using alternative funding vehicles, or improving supplier credit.
Equity financing is money that a business obtains by selling a portion of ownership shares in their company. In several situations, this can also entail relinquishing control in the most significant decisions, to an extent or in entirety. This can be good if your investors bring in some unique synergy or expertise to the business relationship. However, equity investment terms can be tricky, so it is important to fully understand these and get good legal advice.
Businesses should use working capital funds to finance their short-term assets and equity to finance their long-term assets. A fixed asset takes beyond a twelve-month cycle to pay back, while a short-term one would usually be paid back in less than one year.
