How to use Profit First as my debt destroyer (and how it can help with personal finances)

The Profit First method makes it simple to pay yourself as the business owner, pay down your debts, and grow profits as a company… which is what all entrepreneurs aspire to do! 

This simple cash flow blueprint is famous for helping you increase profit and pay yourself first, but it also contains a smart way to eliminate business debt with ease – without allowing your debt to grow and while also keeping your profits healthy and your own paycheck consistently making it into your pocket. 

Debt can be a necessary evil, depending on how you approach leveraging money, but long term, debt is not healthy to the wellbeing of the business and can be a huge stressor on you, the business owner. 

So how can we tackle debt head on? How can we get rid of the debt we have and remove any need for additional debt accumulation in the future? 

The Profit First method can be utilized to help you get rid of debt in your business, and here’s how. 

Set debt repayment as a priority

The Profit First method emphasizes the importance of prioritizing different accounts, including debt repayment. Yes, debt can be beneficial and sometimes necessary for startup businesses, but once you’ve committed to destroying any debt you’ve accumulated during the lifetime of the business, it’s time to utilize all the tools within Profit First to do that as quickly and painlessly as possible. 

Start by creating a separate account specifically for debt repayment and allocate a percentage of your revenue towards this account. Treat debt repayment as a non-negotiable expense, just like any other essential business expense, and prioritize it in your budget. This way, you ensure that a portion of your revenue is consistently allocated towards paying off debt, which helps you make progress towards getting rid of it.

Setting debt repayment as a priority with the Profit First method involves creating a separate account specifically for debt repayment and allocating a percentage of your revenue towards it. This ensures that debt repayment is treated as a non-negotiable expense and is given priority in your business’s financial management. 

Here are some key steps to consider when setting up debt repayment:

  1. Create a debt repayment account. Open a separate bank account specifically for debt repayment, just like you would for profit or for paying yourself. This can be a checking or savings account, depending on your preferences and banking options, and will be used exclusively for making debt payments.
  2. Determine a debt repayment percentage. Analyze your business’s financials to determine what percentage of your revenue you can allocate towards debt repayment while still covering essential expenses and maintaining healthy profit margins. This percentage may vary depending on your business’s unique financial situation and goals. Be realistic of your cash flow when setting the percentage because it’s better to be sustainable than have to backtrack in your numbers down the road. The Profit First method recommends starting with a small percentage and gradually increasing it over time as your business becomes more financially stable. 
  3. Transfer funds to the debt repayment account. On a regular basis, such as every month or quarter, transfer the designated percentage of your revenue into the debt repayment account. This can be done manually or set up as an automated transfer. By transferring funds to the debt repayment account as a priority, you ensure that debt repayment is consistently funded and not neglected in your financial management.
  4. Make debt payments from the dedicated account. Use the funds in the debt repayment account exclusively for making debt payments. This helps you keep track of the exact amount you are allocating towards debt repayment and ensures that the funds are used solely for that purpose. 
  5. Monitor progress and adjust as needed. Regularly monitor your progress (we love quarterly reviews!) towards debt repayment by reviewing your balances, payments made, and remaining debts. You can always adjust the debt repayment percentage if needed, based on your business’s financial performance, goals, and how you’ve been doing so far. 

Trim expenses and optimize cash flow

Another way to utilize the Profit First method to get rid of debt is by thoroughly evaluating your expenses and optimizing your cash flow. Identify areas where you can reduce unnecessary costs, find more cost-effective solutions, or eliminate costs altogether – and then allocate the savings towards debt repayment. Regularly review your cash flow and make sure you have enough to cover debt payments without compromising other essential business operations. By closely managing your expenses and cash flow, you can free up more funds to put towards debt repayment and accelerate the process of destroying debt.

Review and renegotiate vendor contracts

Take a close look at your vendor contracts and assess if there are any opportunities to negotiate better terms or prices. Prioritize reaching out to your vendors and exploring options for reducing costs, such as bulk purchasing discounts, loyalty rewards, or extended payment terms. If they are loyal to your business, they may be willing to work with you to give you a better deal, and the worst they can say is “no.” Another option is to negotiate and shop around for better deals to optimize your cash flow.

Analyze and reduce discretionary spending 

Review your business expenses and identify discretionary spending that may not be necessary or could be reduced. This may include subscriptions, memberships, office supplies, or travel expenses – things that are nice to have but not absolutely necessary for the operation of the business. Look for areas where you can trim unnecessary expenses and optimize your cash flow by reallocating those funds to eliminating your debt instead. 

Optimize inventory management 

Take a look at your inventory management processes and identify areas where you can optimize to reduce costs. This may include better forecasting, negotiating favorable terms with suppliers, reducing excess inventory, implementing just-in-time inventory practices, or exploring drop-shipping options. Effective inventory management can help you free up cash flow and reduce expenses associated with carrying excessive inventory. More cash flow equals more money to pour into your debt reduction plan. 

Implement cost-saving measures

Look for cost-saving measures that can be implemented in your business operations. For example, you could explore energy-saving initiatives, switch to more cost-effective software or tools, or optimize your production or service delivery processes for efficiency. Continuously evaluate your business operations for cost-saving opportunities to trim expenses and optimize cash flow.

Increase revenue and profit margins

The Profit First method encourages you to focus on increasing revenue and improving profit margins as part of your overall financial strategy. Look for opportunities to increase sales, explore new revenue streams, and optimize your pricing strategy to improve profitability. As your revenue and profit margins increase, allocate a healthy portion of the additional profits towards debt repayment. This can help you generate more funds to pay off debt faster and ultimately get rid of it sooner.

Negotiate favorable terms with creditors

You can also use the Profit First method to get rid of debt by proactively negotiating favorable terms with your creditors. This can include negotiating lower interest rates, extended payment terms, or reduced monthly payments. By negotiating more favorable terms, you can potentially reduce the overall cost of your debt and make it more manageable to pay off over time.

Seek professional advice if needed

We cannot overstate the importance of this one. If you are struggling with significant debt in your business, it may be beneficial to seek professional advice from a financial advisor or accountant who is familiar with the Profit First method. They can help you develop a customized debt repayment plan based on your business’s financial situation and guide you on the most effective strategies to get rid of debt while utilizing the Profit First method.

“I’ve heard about the Profit First Debt Freeze – what is that?” 

The Profit First Debt Freeze is a financial management strategy used in conjunction with the Profit First method to aggressively eliminate business debt and is great for businesses facing immense debt, high interest rates, or simply want to become debt-free faster than their current strategy allows. This strategy temporarily freezes or reduces non-essential spending and uses the saved funds to accelerate debt repayments, a bit like a snowball effect.  

Here’s how it works:

  1. Identify non-essential spending. Review your business expenses and identify any non-essential spending that can be temporarily frozen or reduced. This may include discretionary expenses such as subscriptions, memberships, office supplies, travel expenses, or other discretionary spending that is not critical to your business operations.
  2. Implement a freeze on non-essential spending. Once you have identified non-essential spending, implement a temporary freeze or reduction on those expenses. This means cutting off or significantly reducing those expenses during the debt freeze period to free up funds that can be allocated towards debt repayment.
  3. Allocate frozen funds towards debt repayment. Take the funds saved from the debt freeze and allocate them towards debt repayment. Transfer the saved funds to a designated debt repayment account and use them to make extra payments towards your business debts. This can help accelerate the repayment process and reduce the overall interest costs associated with the debts.
  4. Monitor and adjust as needed. Regularly monitor your progress towards debt elimination and adjust your debt repayment plan as needed. Track your balances, payments made, and remaining debts to see the impact of the debt freeze strategy on your debt reduction progress. If necessary, adjust the duration of the debt freeze or the amount allocated towards debt repayment based on your business’s financial performance and goals.

How can this debt destroyer mentality apply to my personal financial situation? 

While Profit First is meant for business financials, the system can apply to our personal money situations as well, including prioritizing debt repayment (so important!), reducing personal expenses, operating within a budget, consistent financial review, and setting up a debt snowball or avalanche to eliminate personal debt more quickly. 

Priority on debt repayment

The Profit First method emphasizes prioritizing debt repayment by allocating a portion of income towards debt reduction. This can be applied to personal finances as well by setting aside a designated percentage of your income towards paying off personal debts, such as credit card debt, student loans, or personal loans. This proactive approach ensures that debt repayment becomes a priority and helps you make consistent progress towards becoming debt-free.

Expense reduction and budgeting

The Profit First method encourages businesses to trim unnecessary expenses and operate within a well-defined budget. Similarly, in personal finances, you can review and reduce discretionary spending, optimize your expenses, and create a budget that aligns with your financial goals. This can free up funds that can be allocated towards debt repayment, allowing you to pay off debts faster.

Monitoring and adjustments

The Profit First method emphasizes regular monitoring and adjustments based on financial performance. Applying this principle to personal finances involves tracking your spending, debt balances, and progress towards debt reduction. By closely monitoring your personal finances, you can identify areas where you can cut back or optimize spending, and make adjustments to your debt repayment plan as needed.

Debt snowball or avalanche method

The Profit First method can also be used in conjunction with popular debt repayment strategies, such as the debt snowball or avalanche methods. The debt snowball method involves paying off debts from smallest to largest, while the debt avalanche method focuses on paying off debts with the highest interest rates first. By using the Profit First method to allocate funds towards debt repayment and combining it with a debt snowball or avalanche approach, you can strategically pay off debts and make progress towards becoming debt-free.

It’s important to note that personal finances are different from business finances, and the Profit First method may need to be adapted and applied accordingly. 

Consulting with a qualified financial professional or financial advisor can help you tailor the Profit First method to your personal financial situation and develop a debt reduction plan that aligns with your specific goals and circumstances, especially if you’re already a business owner. Having one system apply to both business and personal can really help streamline your financials and set you up for increased success. 

Ready to take your first step toward putting profit FIRST in your business? 

I challenge you today to start taking your profit first. Starting with your next deposit, save 1% of that deposit into a saving account and watch that account begin to grow with each deposit. This is the first step of your profit journey, Congratulations! Share your profit wins with us at!

If you’re ready to put Profit First Simplified to work in your business we can help! Learn more here.

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