Human Capital
We sometimes never realise that we are all endowed with very special human capital, by way of very special abilities. This is the profession or the very special ability one is trained into. One could be a doctor, a lawyer, a chartered accountant, a musician, a singer you can name it and this is an invaluable capital.
But when it comes to the situation of using this capital responsibly one would take the following steps a) use it to develop it into a huge enterprise b) take a easy way and work for somebody else or to lend it to someone (THE MEANING FOR WHICH I WILL CLEAR IN THE FOLLOWING PARAS) c) just waste it by not doing any thing (THUS THIS NEED ANY EXPLANATIONS? I ASSUME WHEN YOU ARE READING THIS YOU ARE IN THE FIRST TWO SITUATIONS).
In most of the businesses the basic input is financial capital. It is first used to get in place the entire infrastructure, then the human capital is brought in here it can come in two ways a) the person creating the business brings in his expertise or b) this capital is borrowed (note the word used borrowed I will explain why this word is so appropriate).
Just as when we employ our capital few things become evident a) you have capital or don't in this case you either invest or you borrow and invest. In either case you are willing to take the RISK. If the entire capital is mine the RISK and the GAINS is entirely mine. But in case the capital is borrowed the equation changes, the risk is 100% mine but the gain is split. The gains will always have a split as a) interest on the borrowed capital b) the entire excess that comes after profit minus interest (MIND YOU THIS COULD BE ANYTHING FROM 1TIME OF INTEREST TO SEVERAL TIMES OF IT. WHY SHOULD THIS BE SO?) The equation now has shifted to the side of the person who has taken the RISK. Just because one has taken the risk he stands to take the lion's share of the profit.
Why should the person taking the risk be unfavourably be benefited. It is just because risk brings in a lot is unsaid negatives and positives. Like
a) There is no assurance of a payback after a specific period like interest or salary. Like in case of interest or salary no matter what the situation it has to be paid to the lender.
b) One may have a prolonged period of no pay back. There should be a willingness to go without gratification for a longer period and this could be uncertain and stretch indefinitely.
c) There could be a windfall of profits. But then the interest or salary was predetermined so it will not change, thus there will be no share coming from the multifold earnings.
d) The capital can be deployed and redeployed several times in the specified period (turnover), there by increasing the earnings, but the interest is paid only once for the use in the entire specified period.
This way the entrepreneur will exploit the use of capital in such a manner that his earnings are maximised. Now when we see how the human capital when it gets replaced with the financial capital how the equations change. The situation now is whether this capital is invested into or it is lent out to some one. WHAT SHOULD BE THE OUT COME? Now with the insight applied as above one can imagine the outcome. The idea is should I not be be investing my human capital to get the maximum output out of it?
We sometimes never realise that we are all endowed with very special human capital, by way of very special abilities. This is the profession or the very special ability one is trained into. One could be a doctor, a lawyer, a chartered accountant, a musician, a singer you can name it and this is an invaluable capital.
But when it comes to the situation of using this capital responsibly one would take the following steps a) use it to develop it into a huge enterprise b) take a easy way and work for somebody else or to lend it to someone (THE MEANING FOR WHICH I WILL CLEAR IN THE FOLLOWING PARAS) c) just waste it by not doing any thing (THUS THIS NEED ANY EXPLANATIONS? I ASSUME WHEN YOU ARE READING THIS YOU ARE IN THE FIRST TWO SITUATIONS).
In most of the businesses the basic input is financial capital. It is first used to get in place the entire infrastructure, then the human capital is brought in here it can come in two ways a) the person creating the business brings in his expertise or b) this capital is borrowed (note the word used borrowed I will explain why this word is so appropriate).
Just as when we employ our capital few things become evident a) you have capital or don't in this case you either invest or you borrow and invest. In either case you are willing to take the RISK. If the entire capital is mine the RISK and the GAINS is entirely mine. But in case the capital is borrowed the equation changes, the risk is 100% mine but the gain is split. The gains will always have a split as a) interest on the borrowed capital b) the entire excess that comes after profit minus interest (MIND YOU THIS COULD BE ANYTHING FROM 1TIME OF INTEREST TO SEVERAL TIMES OF IT. WHY SHOULD THIS BE SO?) The equation now has shifted to the side of the person who has taken the RISK. Just because one has taken the risk he stands to take the lion's share of the profit.
Why should the person taking the risk be unfavourably be benefited. It is just because risk brings in a lot is unsaid negatives and positives. Like
a) There is no assurance of a payback after a specific period like interest or salary. Like in case of interest or salary no matter what the situation it has to be paid to the lender.
b) One may have a prolonged period of no pay back. There should be a willingness to go without gratification for a longer period and this could be uncertain and stretch indefinitely.
c) There could be a windfall of profits. But then the interest or salary was predetermined so it will not change, thus there will be no share coming from the multifold earnings.
d) The capital can be deployed and redeployed several times in the specified period (turnover), there by increasing the earnings, but the interest is paid only once for the use in the entire specified period.
This way the entrepreneur will exploit the use of capital in such a manner that his earnings are maximised. Now when we see how the human capital when it gets replaced with the financial capital how the equations change. The situation now is whether this capital is invested into or it is lent out to some one. WHAT SHOULD BE THE OUT COME? Now with the insight applied as above one can imagine the outcome. The idea is should I not be be investing my human capital to get the maximum output out of it?
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