Most business owners know that leverage can help them improve the returns on their investment in their business. However, most do not really explore the concept of leverage far enough and get stuck at business finance.Business finance is the most obvious example that people would identify leverage as – go to a financial institution and borrow some money, invest it in your business and any returns made on this additional business that is greater than the cost of debt will give you a higher return on your investment in the business.
This type of leverage is a bit harder today – banks are less likely to lend, lending ratios have been wound back, reduced sales and increased cost can put debt repayment (and your business) at risk, etc.
The good news is that leverage can be achieved in all sorts of different ways and forms:
Looking to buy new equipment, try to lease or chattel mortgage to fund it. I call this hidden financial leverage because most businesses do not recognise it as leverage. This type of funding is generally easier to come by as it attaches to the asset being bought.
Rent your premises rather than buying – it is still financial leverage. You just have to make sure that you get a greater return from the asset than you are paying.
Share services with another business – this is great if the capital cost of the services is high and has spare capacity. Effectively each business is leveraging off the other.
Employees are the most overlooked form of leverage. You should only put staff on if what they generate is worth more than what they cost. But there is no doubt that 10 staff can produce more than just you can.
Reuse previous work. Many businesses will complete an assignment and then move onto the next. Quite often valuable intellectual property or content has been created. This can be used again at minimal cost as it generally has sunk costs in it that have already been recovered through the original sale.
Use testimonials so your existing or previous clients can leverage your impact to new customers.
Fusion partnering – find compatible business partners and work how you can jointly create a product that is better than either of you can individually. For example, find a product distributor who needs your installation expertise and then market as a package deal.
Really, the opportunities are only limited by your imagination.
However, always remember the golden rule of leverage, the additional sales generated by the leverage must exceed the cost of the leverage.
Marshall Vann – Realistic Business Solutions