Entrepreneurs Know The Value Of Leverage

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Read Other Articles By Art Consoli & Check Out His Author Bio

The Entrepreneurs Guide Series
How To Evaluate And Profit From A
Business Opportunity
By: Art Consoli

Entrepreneurs Know The Value Of Leverage
The Entrepreneurs Guide Part 12

What comes to your mind when you hear the word leverage? For most people it means borrowing money or taking in investors. The term has even been popularized to the degree that it is often referred to by initials -- OPM -- other people's money.

By: Art Consoli

Yes, that is the most common definition and certainly one everybody understands. Using other people's money is also something most successful entrepreneurs practice. They understand how much more they can do if they can hold onto their own money and spread it wisely over several opportunities or keep it for those situations that require immediate cash. Smart entrepreneurs also know that if they have the credentials, they can bring in investors for relatively small percentages of the profits and keep the large percentages of the profits for themselves.

Skilled borrowing can produce even better returns for the entrepreneur. I remember the first time I went to a bank to borrow money for a business I had just started. I knew the banker pretty well (something you should do before you need a loan) and we quickly began to talk about the terms of a loan.

"Art, I can make you a loan at one per cent over prime, that's the best I can do."

"Prime? What's that Myron?"

"That's the interest rate the banking industry charges the best customers when they borrow money."

"You mean like IBM and General Motors (this was a few years ago.)"

"That's right Art. You get the picture. Prime today is 5 1/2 percent."

"So my loan will be at 6 1/2 percent, one percent more than IBM? You guys think my business is only one per cent more risky than IBM? You're crazy."

So if your business will make say 25% profit on much more sales with the bank's money that it could without the bank's money, the 6 1/2 percent is pretty inexpensive. But if your business doesn't make a profit the 6 1/2 per cent could be very costly. It might be a good idea to start your leverage experience with an investor that will be happy with a percentage of the profits as opposed to a lender that wants its interest whether or not there is a profit.

But money isn't the only thing you can leverage, and smart entrepreneurs know this. They think about leveraging time by adding a second shift to run the same equipment with different people. They think about leveraging supplies by using the backside of scratch paper for rough drafts and they leverage their vehicle expense by advertising on the sides of the cars and trucks.

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Art Consoli's unique background and skills allow him to speak and write about how someone with limited experience can do a self-evaluation which will let him decide which business opportunity is best, how to evaluate opportunities and gain control over the one which offers the greatest potential and then manage that business to success. Readers of his book call and write to tell him how much his book has helped their lives and improved their business. The author can be reached at www.businessstrategyartconsoli.com.