Why Do I Need Leverage In My Business?
Leverage is the principle to apply to get ever more with ever less.
What am I saying?
When you start a business, it is not clearly defined. You may have created a Business Plan, but that plan does not fully describe the operation of your business, just an overview. A System Manual or Operation Manual fully describes the operation of your business.
When you started your business, you may have expected to fill in the details of its operation in time. In the beginning business owners tell and show how the jobs in the business should be executed. This can't go on forever! As the business expands, then more and more of your time will be taken up telling and showing and this means that: firstly, you have no time to perform your own role, and then secondly, you have no time to perform any role except telling and showing, and then eventually the business crashes because you can't be telling and showing everyone all the time, and you haven't allowed time for building your business in a sustainable way.
If you are working long, long hours, telling and showing everyone what to do, and spending your time correcting what went wrong, then you need Leverage.
Some Principles of Leverage
Work Once, Get Paid Forever
The principle of Leverage is to do work only once. Write down what you are doing and hand it over to the person who will do it next time. You will need to refine what you have written, but each time the process gets more consistent, and gradually your input ceases to be needed.
You have systemized that task. Well done!
On a grander scale: if you write a book, and it is published, then you have done the task once, and will get paid for it every time someone buys the book.
Ever More with Ever Less
Leverage provides a way in which you can increase the yield from your efforts to get ever more with ever less. Continual refinement, called Kaizen in Japan, yields better and better processes producing better and better results, more and more consistently and efficiently.
Divide to Multiply
We divide tasks and problems up into their component parts to understand how to improve them. For instance, see our 5 Ways Formula in Marketing & Sales below.
Kinds of Leverage
What sorts of Leverage are there?
• Finance & Money
• Marketing & Sales
• Systems & Equipment
Finance & Money
Banks should only lend money to your business when they are sure your business can pay them back. You should only borrow money from a bank when you are sure you can pay them back, and still make money from the deal. The difference between the debt you paid and the money you made is your Return on Investment ( ROI ). The banks ROI is the interest they charged you.
Use money to make money by insuring you always get an ROI.
Marketing & Sales
Some businesses owners set up their businesses, and then wait for customers to turn up. This is the 'organic' way to grow a business. It may seem ethically safe, but the business is likely to run out of money before it is successful, and even more important, your prospects never get the chance to try your products or services because they never find out about them.
We have a 5 Ways Formula that allows us to divide up “I want more Profit” into 8 Steps:
Leads x Conversion Rate = Customers x Average Number of Transactions x Average Sale Value = Turnover x Profit Margin = Profit.
By measuring their figures at each stage, businesses may come to understand where their marketing and sales is weakest, and, by focusing on that step, make big changes to their profit.
Systems & Equipment
Systems have already been discussed. These may be documented ( operations manual ) or automated ( information technology ) to enhance consistency and decrease risk in your business.
Productivity of a business can often be enhanced by having the right equipment. Is there any equipment available that will assist you in selling your products and performing your services? The answer is almost certainly “Yes”. Rent ( for money leverage ) this equipment.
People are often regarded as being the business. In the context of my message today, people replace you, the business owner. You can either have yourself, performing all the tasks in the business, and I often fin business owners doing just that, sometimes watched by their employees, or you can employ. It seems like a simple choice doesn't it, but it must be done right to work?
Do you know how?
If you don't then you are in the same place as most business owners.
Is Leverage Achievable?
First you need cash flow, because Leverage costs money. Once you have cash, then focus on the kinds of Leverage that will generate the greatest ROI. Generally we say, start with Marketing and Sales, then Systems and Equipment, then People, and then, once your business is running smoothly and efficiently, go on to Finance and Money Leverage, when you can get the best rates, such as from shareholders.
In reality most business owners do it the other way around. Speak to me to understand how Leverage can boost the ROI from your business, and where to start.