Financial leverage refers to using a third party’s money to increase profit for the borrower. With real estate, the profit or equity in the property is the weight being lifted by the use of a lever (borrowing money) on the fulcrum (the property).
Financial risks range from having adequate capital to deal with the business dynamics to proper accounting and reporting of financial performance. These risks can be easily controlled via proper funding to eliminate the capital issues and using well educated and trained staff to deal with the accounting and reporting requirements. The goal of financial accounting and reporting is reliance on the tenant of accounting which states: “Good information input maximizes the probability of good information output for the decision aspect of business operations”. In effect, it is difficult for the owner of a small business to make good decisions without the proper information. An owner can by accident make a good decision with poor information. It is highly unlikely but remotely possible.
A third factor in determining a fair profit percentage is risk. Risk is divided into two types. The first is insurable and the second is uninsurable risks. Insurable risks are mitigated and have very little to no effect on the profit formula due to transferring the risk to a third party known as the insurance underwriter. Uninsurable risks are non-transferable and therefore the profit must be adjusted to compensate for this type of risk.
A partnership is a form of a business entity that provides many more advantages than any other form of business entity. There are several basic principles of a partnership that once understood, the reader can use to his advantage in the small business world. Below are descriptions and an explanations of the basic principles of a partnership and the corresponding legal impact.