“Give me a lever long enough and a fulcrum on which to place it, and I shall move the world.”

How does this famous quote by the ancient Greek thinker Archimedes have any relevance to minority owned businesses in urban neighborhoods?   

We've spent some time interviewing small business owners in Baltimore and Philadelphia and we've discovered a recurring problem that needs to be addressed.   Here's an example.  One dude who owns an auto repair garage in East Baltimore has a thriving new business.  He has a line of customers bringing their cars in and he also runs a mobile auto repair service.  It was hard for him to pull himself away to talk to us for even 15 minutes.  Let's call dude, "Bill". 

Most of Bill's clients pay in cash.  Bill proudly manages to report very little of his revenue on his tax returns.  He is "stacking cash".  What could be wrong with this?  Realizing that we had a very short time  to communicate with him before he had to get back under a car we hit on a couple of strong points.

Capital Corner-:"Bill, do you realize that there are two types of money?"

Bill -"Uhm, good and bad?"

CapCorn-"No, The kind that you work all week and then go get a check and the kind that gets mailed to you. Which one do you want?"

Bill- "The kind that gets mailed to me"

CapCorn, pointing to a row house across the street- "If you had $25 thousand could you buy that row house?"

Bill- "yep"

CapCorn- "would that be a good investment of $25 k?"

Bill- "sure"

Now we turned the conversation to the issue of leverage (and we only had a minute, 'cause one of Bill's customers was telling him to stop goofing around and get back to fixing her car). We confronted  Bill with the idea that he may be "looking down the wrong end of the telescope."  If Bill took that same $25 k he could buy FIVE row houses on that block instead of one.   He could put $5K as a down payment on five different houses and use a bank to finance the balance of the purchase price.  If the properties appreciated 10% over 3 years he could stand to make $12.5K profit on five units instead of $2,500  on one.  That is a five-to-one improvement on return.  This is the power of leverage. 

How does this example of leverage relate to Bill's actual business?  If Bill were to REPORT his true earnings in his auto repair business, if he were to move from a grey market cash biz to an above board business with financial statements and accurate tax returns, he could leverage his existing revenue stream.   Yes Bill would have to pay more in taxes and have bookkeeping costs.  And yes Bill would have income that an ex could see and possibly lay claim to.   But the ability to leverage revenue is ABSOLUTELY ESSENTIAL for Bill to be able to grow his business to the point where he could have true wealth; where he could have the kind of money that gets mailed to him.   

There is no reason, through leverage,  that Bill could not expand his business from a two bay garage to a four bay garage.  There is no reason, with the right business plan, that Bill couldn't have several garages around the city and a fleet of mobile mechanics that could even serve government contracts.  However, there is no way that Bill will get the kind of growth he needs by "stacking cash".  Bill must begin the process of building a reportable business.  This is the only way that  he can effectively communicate his vision and plan to a lender or an investor in a compelling way.

The key to growing a business is using"other peoples' money".   We will hit on this point again in a future blog. In the meantime if you want to get the kind of money that gets mailed to you,you will have to learn how to leverage the revenues generated by your business. 



The author, Philip Stephano, is a social media marketing strategist in Bucks County,  PA.  He is passionate about helping local and regional business around the country to use social media as an effective tool to find local prospects and customers. To learn more about Stephano go to http://about.me/philipstephano