We’ve been talking about how running a business is like baking or cooking. You need all the right ingredients, in the right proportions, cooked at the right temperature, for the right amount of time.
Every business owner wants a business that’s perfectly “cooked”, with lots of cash flow and profits and collecting receivables well. If you want to catch up on the other “ingredients”, you can check them out here: profitability, activity, and liquidity.
The next ingredient, leverage, is a little tricky. There are two types of leverage, financial or operating. We’re going to talk about financial leverage, which is how much debt versus equity you have in your business. Think of it like hot sauce; you don’t want too much or too little.