When running a business, certain resources are needed to ensure the success of the business. These resources are used to achieve a company’s financial and other goals. A capital resource is an example of such a resource.
Although capital resources can be challenging to develop and maintain, investing in them can be very beneficial to the company.
Let’s discuss the meaning of capital resources, their characteristics, and their examples in a business.
What Is a Capital Resource in Business?
Capital resources in business refers to the man-made assets used by a company to produce goods or services. They are essential to a company’s productive activities and can be used multiple times to generate further products. They include equipment, machinery, infrastructure, and buildings. Also, capital resources differ from man-made and natural resources, such as land and labour, and should not be confused with commodities or raw materials, as even if a commodity seems human-made, it isn’t always a capital resource.
Furthermore, an increase in capital resources investment is beneficial for an economy as it usually results in more productive output, higher employment levels, and overall economic system improvement.
The Benefits of Capital Resources in a Business
The benefits of capital resources in a business include the following:
- Increased productivity: They enable companies to increase their production output. With the right tools and equipment, businesses can streamline processes and produce goods and services more efficiently. Hence, leading to higher productivity levels and, in turn, meeting customer demands.
- Improved efficiency: They help businesses operate more efficiently. Companies can automate tasks, reduce manual labour, and optimise production processes by investing in modern machinery and technology. This results in cost savings, time savings, and improved overall efficiency.
- Quality control: They are crucial in maintaining quality control in manufacturing processes. With specialised equipment and machinery, businesses can ensure consistency and precision in their production. This leads to higher quality products and customer satisfaction.
- Innovation: Having capital resources allows businesses to innovate and expand. By investing in research and development, companies can develop new technologies, improve existing products, and explore new markets.
- Job creation and economic growth: When companies invest in capital resources, it often leads to job creation and economic growth. Expanding production capacity requires hiring more employees, which stimulates employment opportunities. Additionally, increased production output contributes.
- Improved quality: Capital resources often include advanced technologies and tools that can enhance the quality of products and services. Improving the quality of goods ad services leads to customer satisfaction and loyalty.
- Cost savings: Investing in capital resources can lead to cost savings in the long run. With efficient machinery and equipment, businesses can reduce labour costs and minimise waste.
- Expansion opportunities: They provide the foundation for business growth and expansion. With the right resources, companies can increase their capacity to meet higher demand and explore new markets.
- Competitive advantage: Access to capital resources can give businesses a competitive edge in the market. It allows them to produce goods and services more efficiently, differentiate themselves from competitors, and meet customer demands effectively.
Characteristics of Capital Resources
They have the following characteristics:
- Essential for production: They are a part of the manufacturing process and are necessary for producing a product. Also, they contribute to the productive activities of a company.
- Long-lasting: They have a lifespan that allows them to be used repeatedly over a long period. While the lifespan may vary depending on the resource, it should not be used only once.
- Man-made: Capital resources are created by humans. They include tools, machinery, equipment, buildings, and other assets used in the production process.
- Tangible: Some capital resources are tangible, meaning they can be physically seen and touched. Examples of tangible capital resources include office buildings, manufacturing facilities, machinery, and equipment.
What Are the Types of Capital Resources?
The types of capital resources are as follows:
Human Capital Resources
Human capital resources refers to individuals’ knowledge, skills, and expertise that contribute to the production process. It includes employees’ education, training, and experience, which they provide to new hires or staff members. Without human capital, organizations will face challenges in achieving success.
It refers to the human resources needed to utilize non-human capital resources like raw materials and machinery. Examples of human capital resources include:
- Intellectual capacity, which includes creative thinking, idea formulation, and problem-solving, which is essential for running a company.
- Expertise, including physical effort, manual labour, and social impact, contributes to revenue generation and operation.
- Physical, which includes machinery, tools, equipment, buildings, and infrastructure like roads, contributing to the production process.
Financial Capital
Financial capital resources refer to the funds and financial resources a company uses to finance its operations and invest in capital assets. Financial capital is essential for businesses to acquire and maintain physical and human capital resources. It includes cash, loans, investments, and other financial instruments.
Finance capital is crucial for a company to ensure its tasks and operations are carried out according to standardized criteria. Examples include daily operational expenses, property purchases, and machinery production.
Debt and equity are common forms of financial resources, with debt involving debt repayments and associated costs. While in equity, investors receive a portion of the company’s future profits proportional to their capital contributions.
Social Capital
Social capital is a resource that is even more intangible than financial capital. It refers to the ties a business has with another business or individual and the desire to do things for and with others who are a part of their social networks. It is derived from relationships between individuals in a network and high social capital individuals with access to significant individuals within their field, leading to more business growth and development opportunities. This social capital allows businesses to rely on the capabilities and resources of their networks, giving them an advantage in their ventures.
What Are 10 Examples of Capital Resources?
Here are 10 examples of capital resources:
Machinery
This comprises any type of mechanical equipment employed in production, ranging from robots used on assembly lines to big industrial machines utilized in manufacturing. These machines contribute to an increase in both the company’s efficiency and its productivity.
Manufacturing Equipment
Machinery and equipment are considered capital resources in business. They are important investments that enable companies to manufacture products or provide services. These assets are classified as fixed assets in accounting and have a useful life of longer than one year. Usually, companies use specialized equipment to turn raw materials into parts and finished goods. They include tools and devices used in the production process. It could be anything from a baker’s oven to a farmer’s tractor.
Buildings
Buildings offer the essential space for activities ranging from production to administrative work. They include factories, office spaces, warehouses, and other structures used for business operations. Buildings are vital capital resources; without them, businesses will struggle with production activities, tasks and essential business functioning.
Infrastructure
Infrastructure is critical for the distribution and delivery of products. The distribution and delivery of items are impossible to do without adequate infrastructure. This includes roads, bridges, railways, ports, and any other kinds of infrastructure that make it easier to move goods and services from one location to another.
Technology
This refers to numerous digital technologies that assist in the functioning various business processes, such as computers, software, and networks. Technology has contributed to the simplification of procedures, the enhancement of communication, and the expansion of productive capacity.
Vehicles
Vehicles are essential capital resources for distribution and logistics. Trucks, automobiles, aeroplanes, and ships are examples of the various means of transportation utilised in transporting products or providing services. Without the use of vehicles, distribution and logistics cannot function.
Furniture
Furniture provides a comfortable working environment for employees and can also be used for storage. It comprises of workstations, chairs, and other pieces of office and manufacturing furniture such as shelving, desks, and seats.
Intellectual Property
A corporation can increase its revenue and get a competitive advantage through the use of its intellectual property. Intellectual property is a valuable capital resource. It encompasses intellectual property in the forms of patents, trademarks, copyrights, and any other applicable categories.
Training and Education
Training and education are crucial capital resources in businesses. It focuses on enhancing an employee’s skills and abilities, leading to increased productivity, employee satisfaction, innovation and creativity, and talent retention. By investing in employee training and education, businesses can foster a culture of continuous improvement, generate fresh ideas, and provide opportunities for employees to learn new skills and expand their knowledge. This investment in human capital can result in higher job satisfaction, loyalty, and innovation, ultimately contributing to a company’s success.
Investments
These include financial investments made into other businesses or projects. Investments can generate additional income for a company, thereby contributing to its overall productivity.
FAQs
What Type of Capital Is a Resource?
A capital resource is a type of resource that is man-made and contributes to the production of goods or services in a business or an economy. These resources can be used multiple times over an extended period and are not consumed in a single use.
Is Money A Capital Resource?
Capital resources include man-made items like machinery, tools, and other equipment. However, money is a common unit for buying goods and services with a store of value, replacing the barter system. It is used as a standard form to convert items’ values into quantitative numbers, allowing easy comparison between different commodities. Money also converts reserves of gold or intangible assets like goodwill into monetary figures for standardization and better understanding. It serves as a measurement tool and medium for all activities or production. Hence, money cannot be considered a capital resource by definition.
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