What Is Initial Capitalization?

by W D Adkins; Updated September 26, 2017
Businesswoman in Office with Moving Supplies

“Capitalization” refers to the monetary value of the assets of a business, as opposed to its expenses. Initial capitalization or startup capital is simply the money required to get a new business started. A firm's initial capitalization must include funds to buy assets and pay bills until sales start coming in.

Getting Started

The initial capitalization for a business can come from several sources. Entrepreneurs may use their own money or recruit investors. Other sources include bank loans and government grants for small businesses. A new business may even get credit from suppliers looking for new customers.

Normally, a company's working capital comes from operating revenues, but a new business has no revenues to begin with. Initial capitalization must include sufficient cash to cover expenses and provide working capital for day-to-day operations. The amount of cash needed depends on how long it will take for a particular business to begin generating revenues. A restaurant might need a cash reserve for just a few weeks, while a technical innovation firm may require enough for months or even years of product development.

About the Author

Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.

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