What comes to your mind when you hear the word leverage? For most people it means borrowing money or taking in investors. The term has even been popularized to the degree that it is often referred to by initials -- OPM -- other people's money.

Yes, that is the most common definition and certainly one everybody understands. Using other people's money is also something most successful entrepreneurs practice. They understand how much more they can do if they can hold onto their own money and spread it wisely over several opportunities or keep it for those situations that require immediate cash. Smart entrepreneurs also know that if they have the credentials, they can bring in investors for relatively small percentages of the profits and keep the large percentages of the profits for themselves.

Skilled borrowing can produce even better returns for the entrepreneur. I remember the first time I went to a bank to borrow money for a business I had just started. I knew the banker pretty well (something you should do before you need a loan) and we quickly began to talk about the terms of a loan.

"Art, I can make you a loan at one per cent over prime, that's the best I can do."

"Prime? What's that Myron?"

"That's the interest rate the banking industry charges the best customers when they borrow money."

"You mean like IBM and General Motors (this was a few years ago.)"

"That's right Art. You get the picture. Prime today is 5 1/2 percent."

"So my loan will be at 6 1/2 percent, one percent more than IBM? You guys think my business is only one per cent more risky than IBM? You're crazy."

So if your business will make say 25% profit on much more sales with the bank's money that it could without the bank's money, the 6 1/2 percent is pretty inexpensive. But if your business doesn't make a profit the 6 1/2 per cent could be very costly. It might be a good idea to start your leverage experience with an investor that will be happy with a percentage of the profits as opposed to a lender that wants its interest whether or not there is a profit.

But money isn't the only thing you can leverage, and smart entrepreneurs know this. They think about leveraging time by adding a second shift to run the same equipment with different people. They think about leveraging supplies by using the backside of scratch paper for rough drafts and they leverage their vehicle expense by advertising on the sides of the cars and trucks.

Did you know that when Henry Ford was manufacturing the Model T, he gave the suppliers of parts used on the cars the specifications for the wooden boxes they used as the shipping crates? Old Henry's workers carefully took those boxes apart and used them as the floorboards on the Model Ts.

Many entrepreneurs use graduate students and professors to work on ideas the business owner doesn't have time to get to. I once had three interns working on expansion ideas for my veterinarian drug company. They did a lot of research and concluded that I should take the products to Australia. There were no language or currency issues, the same problems existed there that our products addressed here and the regulatory system would accept the approvals we had obtained in Canada and from the FDA.

What did this cost me? Some long distance telephone calls and lunch where they presented their results.

As I say in my book, there is nothing fair about business. Success in business comes to those who know how to use their resources wisely and who know how to get all the resources they can find to work for them. Leverage is a way to increase your resources. It's up you to use it to your best advantage.

You will find more about this topic in Chapter Twenty-two in my book.