No matter where you are in your coaching journey, by now you have heard us reference the benefits of leverage, most likely countless times.
Helping business owners find leverage is a huge part of the journey here at Entrepreneurial Business School.
Warren Buffett is famously quoted:
“Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.”
We like to think leverage might just be the ninth.
We are big advocates for leverage, and it comes in all shapes and sizes. Here are just a few business examples.
- Financial leverage is securing funding to fuel your next growth step.
- Team leverage is hiring that “seven footer” who elevates your capacity.
- Technology leverage is automating tasks, driving efficiency, and collecting data to inform better decisions.
- Partnerships and strategic alliances expand your reach and audience.
- Intellectual property allows you to turn unique methodologies into scalable assets.
- Client advocacy comes from happy clients who bring referrals.
- Time leverage is created through systems and routines that compound productivity.
All of these forms, and the many I have missed, help you achieve more with less effort.
There is no doubt that leverage is a powerful tool.
But it is equally important that you manage it wisely and do not take your finger off the pulse.
While leverage can amplify success, it can also magnify risk if left unchecked.
Let’s explore a couple of scenarios.
Operations
You have finally leveraged your way out of being the bottleneck in day-to-day operations.
The business has reached that beautiful place where you are no longer required in everything. You take that dream international holiday for three months. Maybe you pack up the caravan and hit the road for a year long sabbatical.
Amazing.
But how will you stay connected. How will you keep your finger on the pulse to ensure things remain on track.
Financial performance is an obvious metric to monitor. But what are the key leading indicators you will watch to ensure the business does not quietly drift.
Revenue is lagging. By the time you have got your finance report the damage has been done.
Pipeline health is leading.
Cash balance is lagging.
Forecasting your future position over the next 12 weeks is leading.
Debtor days creeping out is leading.
Team engagement scores may tell you something long before profit does.
It is super important that once you have reached the panacea of having a business that does not rely on you, you do not accidentally undo the very discipline that got you there in the first place.
Leverage without visibility can slowly turn into regression and decline.
Finance
You have decided that extra liquidity through bank finance is going to unlock the next growth run. Maybe it allows you to acquire another asset. Maybe it funds a bold strategic play.
Again, this is not advice to play small or overly conservative.
But it is advice to run scenarios.
What if sales dropped by 10 percent, 20 percent, or 30 percent.
What would that do to cash flow.
What would that do to loan serviceability.
How much runway would you have.
What if you lost your largest customer.
How quickly could you replace that revenue.
What corrective levers could you pull, and how long would they take to implement.
Financial leverage can accelerate growth beautifully.
It can also amplify pressure just as quickly.
This is not about fear.
It is about governance.
It is about thinking two moves ahead.
These are the kinds of conversations that should regularly be happening with your coach, your senior leadership team, or your board.
It is not about scarcity.
It is not about being overly prudent.
It is about protecting what you have worked so hard to build.
It is about ensuring the leverage steam train keeps rolling, taking you to new heights and helping you chase more of what is sitting on your vision board, without having to slow down because you’ve inadvertently taken a step or two backwards.
Hope it helps.
Cheers,
Darren Gloster
CEO – Australia & New Zealand
Entrepreneurial Business School
