The Business Pitfalls of Leveraging

Avoid taking on more debt than you can endure, it often results in the demise of the business. It really turns into a big issue if your business is over-leveraged, meaning that you have more debt than the business can handle. The issue with leveraging is that it acts like a fixed cost, and like any fixed cost it does not fluctuate with your business revenue activity. Leveraging normally comes as a fixed monthly payment consisting of principal and interest expense. Variable cost such as labor expense, employee burden, material cost does on the other hand closely follow your business revenue activity. Higher business activity translates into higher revenue, which in turn requires a higher labor force.