How should I handle debt from purchasing furniture when using the Profit First system?

Diane GardnerFounder, Adept Business Solutions · Profit First Professional

Ask Mike- Allocating Debt With The Profit First System

17 Jun 2020 · 1 min

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1:01

Leslie, a home-staging entrepreneur with furniture debt, asks how Profit First handles debt repayment. Mike says allocate 95-99% of your profit account to pay it down, but keep 1-5% as a personal reward so you stay in the habit of taking profit. Once the debt is gone, you keep 100% of future profits.

Questions this video answers

Allocate profit as usual, but during profit distribution send 95‑99 % of the profit to pay down the furniture debt and keep only 1‑5 % as a reward to stay in the profit habit. Once the debt is cleared, direct 100 % of profit to yourself.

Chapters

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 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 gonna allocate money to the profit account, but 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. That feels good, right? Feels good. Then once the debt's paid off, every profit payment goes to you, Leslie. Die! That's so stupid.