It
has been said you can lift the Rock of Gibraltar if you have a
fulcrum
point and long enough lever. When we refer to "financial
leverage"
we are talking about the same principle. If you buy a
business
building for $100,000 with $5,000 down, this is using
leverage
of 20 to 1. For a mere 1/20th of the purchase price, you
actually
own and control property that is 20 times more valuable
than
your cash investment.
If
the income of the building is only sufficient to make the
payments
and expenses and you don't gain any cash flow, you are
still
getting the building paid for and perhaps in 5 years or so,
with
continuing inflation, you can sell the building for
$200,000...
a gain of $95,000 on a $5,000 investment. This is the
potential
result of proper use of leverage.
A
good rule to follow in applying leverage, relevant to any
business
venture for that matter, is always provide a reserve.
Hold
back some cash for emergencies. Hold back additional capital
so
if you go under you will have a nest egg to start a new
venture.
Sometimes
when things go sour and there is no way out it is
better
to take the least loss possible, save what you can and get
out...NOW!
Use the remainder to again find financing, margin
leases,
mortgages, franchises and all the other manners of using
money
belonging to others for both their profits and yours.
Selling
your property for cash then leasing back on a long term
lease
is an other form of leverage. If you sell for one million
dollars
cash and lease back at $10,000 per month, you have
generated
tremendous leverage. You now have $1,000,000 each with
10%
down for each property, you now control 10 millions dollars
worth
of income producing properties. Sometimes it is possible to
use
options to hold property, with very little cash down, until
you
can obtain title and take possession. This can produce
fantastic
leverage if planned property.
Going
public is an other method used to gain leverage by using
other
people's money. You receive money from the public for
shares
of your corporate stock and at the same time establish a
market
value for your unissued stock.
Before
you apply leverage on any proposition, be sure know just
what
your are doing. There must be a continuous favorable cash
flow
to service your debt, pay all your costs and expenses and
give
you a reasonable profit. If weakness occurs in any one or
several
of your business entities, it could drag down your entire
organization.
2.
IN FRANCHISES
Franchising
your business operation packet is another form of
leverage.
You are selling others your know-how and the right to
use
your system and/or product for a price, either a share of the
profits,
a bulk payment or a combination of both.
It
is not as simple as it used to be to become a franchiser, due
to
controls and red tape established by the various state and
governmental
agencies. In some states it is just about impossible
for
the layman to proceed to wade through all the red tape
required
to satisfy the laws. However, if it were easy to do, it
probably
would not be profitable anyway.
When
you have met all the requirements of the various agencies,
you
will have an operating manual and pro-forma accounting
statement...You
will have developed a turn-key package for your
franchise
offering
To
get started right get revised statutes of the state from the
Secretary
of State and study the requirements for establishing
and
selling franchises.
As
your franchises become better known and after you have a few
locations,
instead of selling one franchise at a time, offer area
franchise
to "master" franchise holders. Get a portion of the
set-up
charges for each area plus a continuing percentage of
gross
business from each operating unit.
3
IN THE STOCK MARKET
*BONDS
You
can earn interest on non-existent money and buy bonds on a
regular
basis without ever paying for any of them except the
first
five bonds. You will need $500 in cash and a brokerage
account
in both the U.S. and Canada. Open an account with a
canadian
brokerage House and deposit a &500 check with them. On
the
same day, before your check clears, open a brokerage account
in
your home town. This one may be opened without any money.
You
buy new issue bonds through your American Broker and state
that
they MUST be delivered to your Canadian Broker for payment.
The
very day that you purchase the bonds, you will start drawing
interest.
It will take 5 or 6 weeks for the bonds to be
delivered,
and all the time you will be earning interest.
With
this plan, you can space your order so that you can have
$1000,000
or more in bonds on order. and when they arrive at your
Canadian
Broker, it works like this:
The
Broker accept the first five bonds of $1,000 each and place
them
in your account. When the second $5,000 worth arrives, (you
must
always order in $5,000 units), he then sells the first bonds
to
pay for the third, etc...
The
results are BIG profits for non-cash existing money. You can
actually
earn up to 80% interest on money you don't even have.
Often
the new bonds will have an increase in resale value to add
to
the interest earned. Thus a $5,000 bond at 8% interest rate
that
takes 60 days to deliver would earn $67.00 interest. If they
go
up in value, you may pick up an additional $200 to $500 or
even
more when they are sold.
*
PENNY STOCK
Periodically
a great deal of money has been made dealing in Penny
Stock
but it is highly speculative and is perhaps once in a
lifetime
that one is able to hit it right to cash in with a
spectacularly
high yield.
To
take some of the speculation out of it, many investors
purchase
only 100 shares or so, of a number of different
company's
stock. In this way they may only $50 to $100 invested
in
each of 40 to 50 firms. This is one of the best ways to go
when
getting acquainted with this kind of investment.
The
stock of one of the Nation's larger firms, which now has
outlets
in about every city in the United States, was selling at
60
cents a share in 1963. 100 shares at that time for a total of
$60
is now valued at over $75,000!
$9,000
invested in 1948 in stock of what was then a small timber
firm,
was worth over $1,000,000 a few years ago, and in addition
would
have proceed average dividends over the years sufficient to
equal
a top salary each year. A person who invested at that time
would
have been able to "goof off" from that time forward,
receive
more money than working for a living and still have over
a
million dollars in the bank or for other investments.
There
are various newsletters covering low priced stock. One
should
subscribe to several and analyse the information before
investing.
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