Showing posts with label business. Show all posts
Showing posts with label business. Show all posts

Monday, September 10, 2007

power of LEVERAGE

Leverage is probably the most important word in investment and business world. With the proper use of Leverage, one can achieve success and come out miles ahead compared to others who don't. It's just critical to understand the power of Leverage.
Leverage: the use of small initial capital to gain a very high return in relation to its capital by using other people's_____ (use your imaginations to fill in the blank)
In real estate investment world, we can use leverage by using other people's money to complete a transaction that would otherwise be impossible. EX: We borrow 90% from the bank and put in 10% down pay to acquire the property. It is a 9 to 1 leverage.
In business world, boss use leverage by using other people's time to complete job that produce reward more than the salary paid out. EX: we get paid by 50,000 annual salary and we help the company bring in 100,000 revenue. It is a 2 to 1 leverage.
Of course, leverage work both ways. It has negative effect if not used properly. In pervious example, if an employee produce instead only 10,000 revenue to his boss, the business is actually lossing more money by hiring more people. We have to manage the leverage closely to make sure it's always in full force working for us.