Being in debt sucks. I hate debt. I despise car payments, mortgage payments and credit card payments. I don't like borrowing money for anything!
If you want to know how I really feel about debt, just ask me sometime. 🙂
Seriously though. I know there is a concept of "good debt" vs. "bad debt" that we will actually talk about in a few weeks. But if you are in debt, you know it doesn't feel very good. I remember a time I was in debt to the IRS for five figures. That REALLY didn't feel good, and that experience largely shaped my perspective on debt to this day.
Debt is a huge problem in many of the businesses I consult with, and it shows up in two primary ways:
1) Large credit card or loan debt
2) The inability to pay monthly bills with current cash flow
Even worse is the correlation between these two. #1 gets worse because the business owner is in situation #2, and keeps using credit cards to cover. STOP IT ALREADY!
In my last post (You've Got Profit All Wrong) we introduced what Profit is and isn't as an introduction to the Profit level of the Business Hierarchy of Needs.
The debt load in your business has everything to do with the Profit you can achieve, which is why question #1 on the Profit level is;
"Do you consistently remove debt rather than accumulate it?"
Answering "no" to that question usually reveals a business that has a pretty short runway when it comes to both stability and viability.
It won't surprise you debt is one of the very first things we work on when implementing Profit First into your business. First we look at what the sources and amount of debt are, then create a plan to systematically pay it off. And we also record total debt at the end of every month. Without this awareness and keeping it in front of you, it's easy to ignore.
At the same time we are going to take a good hard look at expenses. I know, I know, you are running "lean", but are you really? I can tell you first hand that you alone cannot be objective when it comes to reducing expenses. If you didn't "need" it, you wouldn't have purchased it in the first place, after all. Reality check. We ALL spend money on things we don't really need. And as Mike says, "If you can't pay your bills, you can't afford your bills". Having an outside advisor who can be non-emotional and objective about expenses is critical at this stage.
The beauty of the Profit First system is it puts an automatic debt reduction strategy in place using your Profit Account. If you have outstanding debt, we use most of the funds in this account to accelerate your debt payoff. Why the Profit account? Because you are not truly profitable when you have debt.
The freedom you will feel when you get out of debt is worth the short term pain of cutting expenses and running lean. Spending money is fun, I like doing it too. I racked up thousands in credit card debt for stuff I "needed". And it took years to get out of debt when I finally woke up to how foolish I was being.
You can't change the past. But you can make better decisions now that affect your future and the future of your business. Think about it. How will your life change when every dollar you are paying in debt becomes a dollar that goes into your Profit account?
Make It Happen. We can show you how.