In most cases, significant wealth creation comes through intelligent use of leverage. The word leverage in this sense, means the maximization of a company’s resources. Although people tend to associate leverage with finance, these resources can be of operational as well as of financial nature.
The Use of Leverage in Business
Companies are built around various types of resources and therefore have disparaging access to leverage opportunities. Some companies have resources that they can collateralize with relative ease. These types of companies will have easier access to financial leverage, such as real estate operations, banks and utility companies.
Other companies leverage the resources of their stakeholders. Think about two-sided marketplaces, stock exchanges, asset managers and payment processors. If you think about it, even company owners that hire staff are hiring under the premise that the processes of the company create higher utility that the implied cost of the employee’s time.
Different Types of Leverage
There are two main types of leverage for a company, financial leverage and operational leverage. However, not all leverage is created equal. Normally, leverage is a two-edged sword that cuts both ways. But not all leverage is created equal. Some companies have access to non-recourse leverage, even at limited cost.