I bet you are wondering by now how you will ever get to paying down debt with this method.
With Profit First, we believe in having profit paid FIRST!
But, that does not mean that we ignore our debts. So, what do we mean and how do you do that?…
When money comes into the business, we recommend allocating it to things with the definition of “profit” (things that are going to benefit you as the owner.)
This is going to include:
- An account for taxes so that the business covers the income tax.
- An owners pay account to pay the owner a livable wage.
- And lastly, profit account designed to give a quarterly profit distribution to the owner.
Let’s focus a minute on the profit account, as this is going to massively accelerate paying down debt.
You are still going to pay the minimum monthly payments through the operating expenses, but once a quarter you will also be getting that quarterly profit distribution.
You can (and should!) use a portion of it on yourself and your team, to celebrate your success, BUT then the other 99% of it you will want to use on paying towards your debt balance.
We like to recommend Dave Ramsey’s snowball method. The idea is you list out all your debt from the smallest balance owed, all the way down to the largest.
Reminder-You don’t focus on the interest expense rate, just the balance.
Again, you are still making the monthly payments from the operating account but once a quarter use this profit distribution to pay off debts, starting from the smallest debt and going down.
As you pay off that first debt, you are going to rollover the monthly payment from the operation cost you were using for that bill and apply it to the next debt on the list. By the time you end up on your highest balance, the monthly payment you are paying on that debt is going to be much higher than the minimum monthly payment. Hence the snowball effect, as it gets bigger as it goes down.
Following this method you will find your debts are getting paid off much faster and easier than you would have expected!
I am DETERMINED to help Microgym owners see bigger PROFITS in their businesses!!!
In my new book, Profit First For Microgyms, I break down Mike Michalowicz’s proven method, so that it is easily digestible by our Microgym owner community. You can pre-order your copy today by clicking here.
Interested in more tips and advice on how to better manage the financial health of your microgym?
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