Leslie started a home-staging business with furniture-purchase debt. Mike explains Profit First: generate profit, put 95-99% toward debt payoff, keep 1-5% as a reward to reinforce the habit. Once debt clears, all future profit goes to you.
I love this question I got from Leslie. She's a home stager and she said, mike, to start my business, I had to buy tons of furniture to pay off that debt. I can't be profitable, right? And the answer is, technically, that is correct. You need to pay off your debt first using the profit first system. But we do it by allocating profit. So understand that those purchases were an expense you incurred that you didn't have the money for. The only way to pay off debt is to make more money today than you're spending, AKA profit. So we're still going to allocate money to the profit account. When it comes to profit distribution time, 95 to 99% of that money comes out to pay off that debt. Of that furniture you purchased. But a small portion, 5 to maybe as little as 1%, comes out to reward you. So you're in the profit habit. Feels good. Then once the debt's paid off, every profit payment goes to you. Leslie, this is stupid.
