It has been said that you can lift the Rock of Gibraltar if you have a foothold and a long enough lever. When we refer to “financial leverage” we are talking about the same principle. If you buy a commercial building for $100,000 with a down payment of $5,000, you are using 20 to 1 leverage. For just 1/20 of the purchase price, you actually own and control property that is 20 times more valuable than your cash investment.
If the income from the building is just enough to make the payments and expenses and you don’t get any cash flow, you are still paying for the building and maybe in 5 years or so, with continued inflation, you can sell the building. for $200,000… a profit of $95,000 on an investment of $5,000. This is the potential result of the proper use of leverage.
A good rule of thumb to follow when applying leverage, relevant to any trading venture, is to always provide a reserve. Save some cash for emergencies. Keep the extra capital, so if you run out of funds, you’ll have a nest egg to start a new business.
Sometimes, when the going gets tough and there’s no way out, it’s better to take as little loss as possible, save what you can, and get out… NOW! Use the rest to find new financing, marginal leases, mortgages, franchises, and all other ways to use money that belongs to others for both their profit and yours.
Selling your property for cash and then renting it back on a long-term lease is another form of leverage. If you sell for a million dollars in cash and lease it for $10,000 per month, you have built up enormous leverage. You now have $1,000,000 each with a 10% down payment for each property, you now control 10 million dollars worth of income generating properties. Sometimes it is possible to use options to hold the property, with very little cash, until you can obtain title and take possession. This can produce fantastic leverage if the property is planned.
Going public is another method used to gain leverage by using other people’s money. It receives money from the public for shares of its capital stock and at the same time establishes a market value for its unissued shares.
Before applying leverage on any proposal, make sure you know exactly what you are doing. There must be continued favorable cash flow to pay off your debt, pay all of your costs and expenses, and make a reasonable profit. If a weakness occurs in one or more of your business entities, it could drag your entire organization down.
2. IN FRANCHISE
Franchising your business operations package is another form of leverage. You are selling your knowledge and the right to use your system and/or product to others for a price, either a share of the profits, a massive payment, or a combination of both.
Becoming a franchisor is no longer as easy as before, due to the controls and bureaucratic procedures established by the different state and government agencies. In some states it is almost impossible for the layman to go through all the red tape necessary to comply with the laws. However, if it were easy to do, it probably wouldn’t be profitable anyway.
When you have met all the requirements from the various agencies, you will have an operations manual and pro forma financial statement… You will have developed a turnkey package for your franchise offer.
To get off to a good start, obtain revised state statutes from the Secretary of State and study the requirements for establishing and selling franchises.
As your franchises become more well known and after you have a few locations, instead of selling one franchise at a time, offer area franchises to “core” franchise holders. Get a portion of the facility charges for each area plus an ongoing percentage of each operating unit’s gross business.
3 IN THE STOCK EXCHANGE
*CAPTIVITY
You can earn interest on non-existent money and regularly buy bonds without having to pay any of them except the first five bonds. You will need $500 in cash and a brokerage account in both the US and Canada. Open an account with a Canadian brokerage firm and deposit a check for &500 with them. On the same day, before your check clears, open a brokerage account in your hometown. This can be opened without money.
You purchase newly issued bonds through your US broker and state that they MUST be delivered to your Canadian broker for payment. The same day you buy the bonds, it will start earning interest. The bonds will take 5 or 6 weeks to be delivered, and all the time you will be earning interest.
With this plan, you can space out your order so that you can have $1,000,000 or more in bonuses on the order. and when they get to their Canadian broker, it works like this:
The Broker accepts the first five bonuses of $1,000 each and deposits them into his account. When the second $5,000 value arrives (you should always order in units of $5,000), you then sell the first bonds to pay for the third, etc.
The results are BIG returns for existing non-cash money. In fact, you can earn up to 80% interest on money you don’t even have.
Often new bonds will have an increase in resale value to add to the interest earned. Therefore, a $5,000 bond at 8% interest that takes 60 days to deliver would earn $67.00 in interest. If they increase in value, you can get an extra $200 to $500 or even more when they sell.
* SAVE CENTS
A great deal of money has been made periodically trading Penny Stocks, but it is highly speculative and perhaps once in a lifetime one can hit on cashing in with a spectacularly high yield.
To eliminate some of the speculation, many investors buy just 100 shares or so, of several shares of different companies. This way, they can only invest $50 to $100 in each of 40 to 50 companies. This is one of the best ways to become familiar with this type of investment.
Shares in one of the largest firms in the Nation, which now has outlets in nearly every city in the United States, were selling for 60 cents a share in 1963. 100 shares at that time for a total of $60! They are now valued at over $75,000!
$9,000 invested in 1948 in shares of what was then a small lumber company, was worth more than $1,000,000 a few years ago, and furthermore, would have produced average dividends over the years sufficient to equal a maximum salary each year. A person who invested at that time would have been able to “buy the time” from then on, receive more money than working for a living, and still have over a million dollars in the bank or for other investments.
There are several newsletters that cover low-priced stocks. One must subscribe to several and analyze the information before investing.