Introduction
Working capital is traditionally defined as the short-term funds available to meet day-to-day business expenses (current assets minus current liabilities). However, for small businesses, success and sustainability demand more than just cash on hand. We propose a broadened definition of “working capital” that encompasses three interrelated components: (1) sustained financial support sufficient to reach product–market fit, (2) social capital resources such as trust, networks, and knowledge sharing, and (3) human capital development that ensures skilled, fulfilled workers with adequate safety nets. This holistic view aligns with emerging research that multiple forms of capital — not only financial — are critical to small firm success[1]. In this framework, working capital becomes a multi-dimensional resource base enabling small enterprises to survive, grow, and thrive. Below we develop a theoretical framework for this expanded concept, drawing on literature in entrepreneurship, economics, management, and development studies, and conclude with practical suggestions.
Financial Capital: Patient Support Until Product–Market Fit
Financial capital remains the first pillar of working capital, but our emphasis is on patient, sustained funding that supports a venture through the risky early stages. Many small businesses face a “Valley of Death” between startup inception and achieving product–market fit, a phase during which the firm must rely on external investment to survive[2]. Insufficient access to funding during this period is a leading cause of failure – studies indicate that lack of capital (e.g. credit or cash reserves) accounts for roughly 29% of small business failures within the first 5 years[3]. In other words, inadequate working capital in the initial years – without ongoing infusion of funds – often proves fatal, as founders cannot cover basic expenses like wages, rent, inventory, and taxes[4].
Traditional working capital management focuses on short-term liquidity, but small firms typically need “permanent” working capital or long-term patient capital to find their footing. This entails funding arrangements (whether retained earnings, grants, or patient investors) that remain in place for as long as necessary to reach viability. Research on entrepreneurial finance calls this patient capital – capital with long time horizons that endures the uncertain early years until the business can stand on its own[2]. For example, venture accelerators like Y Combinator not only provide seed money but also extended support through mentorship, recognizing that startups often require continuous backing beyond an initial lump sum[5]. Thus, an expanded working capital framework posits sustained financial support as a core component – essentially ensuring the enterprise has enough “runway” to experiment, pivot, and ultimately achieve product–market fit. Without this financial cushion, even promising businesses may never realize their potential.
Social Capital: Networks, Trust, and Knowledge Sharing
The second pillar of the new working capital definition is social capital – the resources that entrepreneurs can access through relationships, networks, and community. Classic definitions describe social capital as “the resources available in and through personal and business networks,” including information, ideas, leads, business opportunities, influence, goodwill, trust, and cooperation[6]. In a small business context, social capital means having a trust network of mentors, peers, customers, suppliers, and community members who provide guidance and support. These relationships serve as conduits for knowledge sharing (e.g. advice, technical know-how) and can amplify a founder’s leadership influence and reach. High social capital often translates into intangible advantages: for instance, an entrepreneur embedded in a dense network is better able to build customer loyalty and expand their client base through word-of-mouth[7]. Trust and reputation within networks can also ease access to resources like credit – studies find that strong social ties increase the likelihood of obtaining trade credit from suppliers or informal loans from friends and family[8].
Importantly, social capital is a collective asset rooted in relationships, not owned by any one individual[9]. This means small business owners must invest time in community building, networking, and knowledge-sharing activities to grow their social capital. The literature consistently links social capital to better firm performance and resilience. For example, during the COVID-19 crisis, small enterprises in Jakarta with higher trust and social networks had significantly higher survival rates than those without – even when financial and human capital were controlled[10]. Entrepreneurial ecosystems and peer support networks can thus be as vital as cash in sustaining a business. In our framework, working capital includes this social infrastructure: the trust, network reach, leadership influence, and flows of knowledge that allow a small firm to mobilize help and adapt to challenges. A rich social capital base can provide “off-balance sheet” liquidity in the form of favors, referrals, and shared resources, complementing the firm’s financial capital.
Human Capital: Skills, Dignity, and Worker Protection
The third component is human capital, which refers to the people-powered assets of the business – the skills, knowledge, experience, and health of the owner and employees. In simple terms, human capital is the productive capacity of the labor force, i.e. the “skills and abilities” that workers bring to the business[11]. High human capital (e.g. a well-trained, experienced team) increases innovation and efficiency, making it a key driver of small business performance[12]. However, our expanded definition goes beyond seeing employees merely as inputs; it emphasizes human capital expansion and dignity. This means fostering continuous learning and skill development (training programs, upskilling) and ensuring that work is fulfilling and secure for employees.
The notion of dignity through work aligns with the concept of decent work in development literature. The International Labour Organization (ILO) defines decent work as “productive work for women and men in conditions of freedom, equity, security and human dignity”[13]. In practice, this implies that a small business committed to building human capital will strive to provide fair wages, a safe work environment, opportunities for growth, and basic worker safety nets (such as health benefits or sick leave). This is not just altruism – it can strengthen the enterprise. Employees who find their work meaningful and secure are typically more motivated and loyal, reducing turnover costs and improving productivity. Furthermore, offering a modest safety net (even if informal) can enhance morale and trust within the company, which loops back into social capital.
Many small businesses, especially in informal sectors, lack formal protections for workers – in fact, low levels of formalization often mean workers and owners have no social protection coverage (no insurance, paid leave, or unemployment buffer)[14]. Our framework argues that treating investments in employee well-being as part of working capital can yield long-term dividends. For instance, spending on staff training or health insurance should be viewed not merely as an expense, but as capital investment in human resources that boosts the enterprise’s capacity. As Wharton management experts note, companies that recognize human capital as a competitive asset (rather than just a cost) tend to outperform, because today “knowledge, skills, competencies, and people are at the core of value creation”[12]. In sum, by expanding human capital and upholding worker dignity, a small firm builds a resilient, capable team – an integral component of its working capital arsenal.
An Integrated Theoretical Framework
Bringing these elements together, we conceptualize working capital for small businesses as a three-dimensional framework comprised of financial, social, and human capital working in synergy. Each form of capital reinforces the others:
- Financial capital provides the liquidity and runway needed to leverage opportunities that social networks or skilled employees identify. Without adequate funding, social connections or employee talents may go underutilized.
- Social capital creates access to opportunities and support that make financial resources more effective – for example, a network might connect a startup to a low-interest lender or a key hire, multiplying the impact of its funds. Social trust can also reduce transaction costs and risks, effectively stretching financial capital further[15].
- Human capital is the engine that converts resources into outputs – a talented, motivated team will use finances efficiently and can tap into networks productively. At the same time, investing in human capital (through training or fair practices) often enhances a business’s reputation and relationships, thus growing its social capital base[11][5].
This integrated view draws on the resource-based theory of the firm, which holds that intangible resources like knowledge and relationships can be sources of sustainable competitive advantage. It also resonates with development frameworks like the Community Capitals Framework, which highlights human, social, and financial capital (among others) as foundations of community economic development. By redefining working capital in this multidimensional way, we better capture the full spectrum of resources that a small enterprise needs to survive and flourish in dynamic environments. A theoretical proposition here is that small business resilience and growth are functions of an optimal balance of financial, social, and human capital. Deficiencies in any one component can undermine the whole. For instance, heavy financing alone will not guarantee success if a venture lacks know-how or community trust, and conversely a passionate, skilled founder may still fail without funding. Figure 1 below illustrates this framework, showing working capital as the overlap of these three forms of capital (financial, social, human) driving towards sustainable business performance.
Figure 1: The “Three Capitals” framework of working capital for small businesses (financial, social, human). Financial capital provides essential liquidity (blue), social capital offers networks and trust (green), and human capital contributes skills and labor (orange). The intersection represents an integrated working capital supporting business sustainability.[2][6]
Implications and Recommendations
Viewing working capital through this expanded lens has significant implications for entrepreneurs, investors, and policymakers. Below we outline practical suggestions and avenues for further research based on the three-capital framework:
- For Entrepreneurs: Recognize that strengthening your venture’s social and human capital is as crucial as managing cash flow. Proactively invest in relationships — join industry groups, seek mentors, and build trust with customers and suppliers. These networks can open doors to funding, partnerships, and knowledge that money alone cannot buy[6][8]. Likewise, invest in your team: provide training, acknowledge achievements, and cultivate a positive workplace culture. Such steps enhance productivity and loyalty, reducing costly turnover and helping attract talent even if you cannot pay top salaries. Think of these expenditures (time spent networking, money spent on employee development) as strategic investments in working capital that will pay off in resilience and growth.
- For Investors and Lenders: When evaluating small business viability, look beyond the balance sheet. A startup with limited cash but strong social capital (e.g. supportive mentors, community backing) and high human capital (experienced, committed founders/employees) may be less risky than it appears in financial statements. Consider adopting metrics for social and human capital – for example, assessing the entrepreneur’s network or team expertise – as part of due diligence. Additionally, design financing instruments with long-term horizons (such as revenue-based financing or flexible repayment loans) to provide the patient capital that small businesses need to reach product–market fit[2]. By aligning financial support with business development timelines, investors increase the chances of enterprise success (and eventual returns).
- For Policymakers and Support Organizations: Expand small business support programs to cover all three capitals. Traditional assistance often focuses on loans or grants (financial capital), but our framework suggests equal attention should be given to building social and human capital. This can include funding local entrepreneurial networking events, mentorship programs, or incubation hubs that facilitate knowledge sharing and trust-building among small business owners. It also means strengthening the social safety net for entrepreneurs and employees – for instance, exploring portable benefits or affordable insurance options for small firms, so that starting or working at a small business does not equate to foregoing basic protections[14]. Governments and development agencies might also offer training vouchers or tax incentives for workforce development in small enterprises, signaling that investing in human capital is just as vital as securing financing. Ultimately, a policy approach that “thinks beyond tax credits and even grants” towards enabling a coordinated business ecosystem (social networks, skills training infrastructure, fair regulations) will yield more robust small business growth[16][17].
- Further Research: The proposed three-capital framework opens several research avenues. Future studies could develop metrics to quantify social and human capital as components of working capital and empirically test their impact on small business performance across different contexts (e.g. tech startups vs. traditional SMEs, or developed vs. developing economies). Longitudinal research could examine how the balance of these capitals shifts over a firm’s lifecycle – for example, is social capital most critical in the startup phase, while human capital gains importance during scaling? Another suggestion is to explore the role of cultural capital (e.g. local attitudes and norms) as a possible fourth dimension influencing the efficacy of financial, social, and human capital[18]. By refining this theoretical framework and its measures, researchers can provide deeper insight into how entrepreneurs can strategically cultivate all forms of capital for sustainable success.
Conclusion
In reimagining “working capital” for small businesses, we move from a narrow focus on cash and current assets to a holistic resource-based perspective. The three pillars – sustained financial support, rich social capital, and robust human capital – together form the foundation for entrepreneurial endurance and growth. This expanded definition captures the reality that money alone does not guarantee success: a trustworthy network and a skilled, motivated team are equally indispensable working assets. Grounded in existing literature and theory, our framework invites a more integrated approach to supporting small enterprises, whether through research, policy, or practice. By ensuring entrepreneurs have not just the funds, but also the relationships and human capabilities to deploy those funds effectively, we can better empower small businesses to reach product–market fit and beyond. In short, working capital is redefined as the full spectrum of capital – financial, social, and human – that “works” together to drive venture success[17]. Adopting this three-capital paradigm could herald new strategies for fostering resilient, inclusive entrepreneurial ecosystems worldwide.
Sources:
- Mazzarol, T. & Reboud, S. (2020). The role of inadequate working capital in startup failure, as discussed in Atamaya (2025)[4].
- Shabat, M. (2019). Statistic on small business failures due to lack of funds[3].
- The Venture Collective (2025). Valley of Death from inception to product–market fit (need for investment)[2].
- Baker, W. (2000). Definition of social capital – resources in networks (information, trust, cooperation)[6].
- Fafchamps, M., & Quinn, S. (2021). Social capital and SME productivity – dense networks build trust and customer base[15].
- Meliza, M. (2024). Study on Jakarta SMEs – trust (social capital) and access to finance improved survival[10].
- Rabkin, D. (2023). Seven Forms of Capital framework – importance of knowledge/human capital and ecosystems[11][5].
- Cappelli, P. (2023). Human capital at core of value creation in modern firms[12].
- International Labour Organization (ILO). Decent work definition – freedom, equity, security, human dignity[13].
- Scarlato, M., & d’Agostino, G. (2024). Social protection gaps in informal small enterprises[14].
- Capital One & BCG (2023). Report on multiple capitals for small business success – beyond financial[1][17].
[1] [5] [11] [16] [17] [18] The Seven Forms of Capital | Capital One
https://www.capitalone.com/about/insights-center/seven-forms-capital/
[2] The Valley of Death – The Venture Collective
https://www.theventurecollective.com/approach/
[3] [4] (PDF) Strategies to Obtain Working Capital for small Business.: A Qualitative Multiple Case Study
https://arxiv.org/pdf/2104.12004
[10] The Effect of Human Capital, Social Capital, and Financial Capital on Micro and Small Business (MSE) Survival: A Study in DKI Jakarta
[12] Valuing Human Capital: How Small Changes Could Help Firms – Knowledge at Wharton
[13] andeglobal.org
[14] Social protection and formalization in low- and middle-income …
https://www.sciencedirect.com/science/article/pii/S0305750X24001323
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