Use Other People’s Money to Grow Your Business
When I took Managerial Finance in college, the chapter on Leverage confused me. Three years after graduating, John, my professor, called me to see how things were going. He asked, “Did I teach you anything that was helpful?” I said, “You taught me many helpful things, but I never understood Financial Leverage. We’re not in the classroom now. Can you explain it in layman terms?”
He explained it in three words – Other People’s Money (OPM). Then I asked, “Why didn’t you tell me then?” John had a sense of humor, and went on to say, “You’re supposed to use leverage to get rich. If I’d told you then, you wouldn’t have been able to handle it. But I think you can handle it now.” Here’s how Leverage can grow your business and make you rich.
Financial Leverage (Other People’s Money) in layman terms
The textbook explained Leverage as a source of financing your business, from other people’s money through sale of stock and bonds. It never described it the way John finally did. A college student who’s never been out in the real world has a hard time understanding this. Ever since he said Other People’s Money, John also said to me, “If he had explained it this way in the class room, you still would have been confused. Leverage is something you have to learn from experience.”
How to use other people’s money and leverage to grow your business
This is not the classroom. I’m writing this to help you build your business, not to get a grade. Here’s how other people’s money, Leverage will help you build a successful business and make money.
3 ways to use other people’s money, leverage, to grow your business
- Invest your profit back into your business. Starting an online business is different from brick and mortar. Other that the low costs of domain names and hosting, the only cost is time. Once you start making a little money online, put your money back into your business. Make use of some of the paid resources available to help your business grow. Remember, this is new found money, other people’s money. Let it work for you by putting it back in your business. It’s like asking, “Do I get a little money not, or a lot of money later?”
- Use credit and credit cards the smart way. When you start a business, get a credit card for business only. Don’t fall into the credit card trap. You’re getting a credit card to make money, not to spend money. Then, surround yourself with the best people. You don’t need to hire people. Take advantage of the paid services to help you build your business. Many are very good companies. Check them out very carefully. We’re not talking about thousands of dollars, but merely, a few hundred. Use your credit card to finance your business. If you do your due diligence carefully, and check these people out, they will help you multiply what you pay for the services many times. It’s not costing you any money out of your pocket because you’re using OPM. I’ve done this many times. This is how I’ve grown my business.
- Get a loan only when you have the money in the bank. The best time to get a loan is when you don’t need the money. The first two ways of using leverage will put money into your business. Now, it’s time to take your business to the next level. Never use your own money. Get a bank loan. If you have a bank account to use as collateral, any banker would approve your loan, because there’s a guarantee it will be re-paid. Then, use this money to build your business to the next level. Look at it this way. You have the money to re-pay the loan if you get in trouble. But if you surround yourself with the right people, you’re not going to get in trouble.
Using leverage, other people’s money, is the best way to grow your business. The money is there for the taking. The business decisions are yours. Before you make a decision, always run a thorough check on the people you want to deal with. Do this right, make the right decisions, and Leverage and OPM will help you grow a very successful online business.