You wouldn't be alone if you thought that you couldn't possibly start using Profit First because you have debts that you need to pay first. In an ideal world, we could implement all of the principles and start using it exactly right from day one! Unfortunately though, for the majority of business owners, it will be a process that takes time with some obstacles to overcome.
If you have debt – either business or personal – this isn’t a reason to postpone the implementation of Profit First into your business. Actually, it should be a reason to get started sooner!
Like all of the other tools Profit First gives you, dealing with debt has been based on human behaviour and what works best for our brains!
There are many ways of dealing with debt and whilst paying off the debt with the highest interest rate is the most beneficial method financially – it often doesn’t work well because human beings lose motivation quickly when we don’t see results.
Using The Snowball Effect to repay debt
Instead Profit First advises to make a list of your debt in order of value from low to high. Have a minimum payment plan set up for all your debt where necessary and stick to it. However with any excess funds start to pay more off your lowest value debt until it is cleared. Once it is cleared then move the minimum payment fee from the cleared debt to the next one and any excess funds pay off it too.
This is known as the snowball effect as by time you come to paying off your highest debt, you could potentially have quite a large sum of money to pay off it each month and will clear it a lot quicker. The human brain will work well using this method and keep us motivated to keep going!
We're a certified Profit First advisory firm and along with our sister company Ciara Magill-Lavery Ltd, we are helping business owners understand profit first and how it can help in your business.
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