Death to Debt: The Root of the Problem
Debt can be a really sneaky thing. It’s easy to look at your income statements and see healthy revenue, but actually keeping that as profit is entirely different. If the first thing you do when you sign a new client is increase expenses, you might be one slow-paying client away from being in debt and not knowing how to recover. If you’re not in debt, using Profit First is a great way to ensure you stay out of debt.
If the Debt Elephant is already sitting on your chest, it can be hard to see a way out that doesn’t involve huge and immediate sacrifices. In reality, “crash dieting” your way out of debt is like fixing a leaky faucet in a burning building. We need to change the way you approach revenue and cash while paying off your debt.
The root of the problem
It might seem counterintuitive to even be thinking about maintaining a profit-based system when you owe lenders money. You want to put your entire focus on paying off debt. But if that’s your whole focus, you’ll miss the key change that needs to be made. Let’s say you do pay off your debt without regard for managing profit. What have you learned? You’ve just trained your brain to know that you can “oh shit” your way out of any situation. That might feel like a win, but in reality, you need to learn how to stay out of that situation in the first place. This is where Profit First comes in.
Even if you’re in debt that feels debilitating, you have to establish the habits that put your profit and your own pay first. That is how you fix the root of the problem.
Change your dopamine flow
I’m going to be real with you, changing your mindset around saving is the hardest part of becoming a business owner who puts profit first. Society trains us that spending is happiness; if you have a big office and take clients out for fancy dinners, your business is the pinnacle of success. The dopamine rush when you buy is real. Saving, on the other hand, is perceived as boring. Saving is definitely not that $400 steak dinner.
You’ve got to learn to get the same happiness from saving that you do from spending. Get high on saving money. Congratulate yourself when you choose not to spend money. Go over the top with self-praise if you opted out of spending even five dollars you didn’t really need to spend.
Replace the dopamine of shopping with the dopamine of savings, and your profit will… profit.
Hope for the best, prepare for the worst
A common way entrepreneurs end up in debt is by assuming their recent Baller Sales Month is the new normal month. I get it; you want to be optimistic and continue to challenge yourself as a business owner. Imagining that your revenue line chart is going to look like a smooth, sexy incline without fail is tempting, but unrealistic.
Just like great months happen, bad months happen. Your revenue line chart will probably look more like my teen son learning how to drive a manual transmission: periods of smooth sailing with occasional stalls and rolling backwards down a hill. The best way to combat unrealistic budgeting is by using your worst month as your average month. It’s the perfect example of “hope for the best, but prepare for the worst” and will ensure your better months aren’t just paying off the debt of prior overspending.
Start small and start now
Changes to your mindset and changes to your budgeting certainly aren’t the only actions you can take that will fix your debt problem and keep your business healthy, but they are immediately beneficial and will snowball into a new and always-profitable phase of business ownership.
Commit to putting profit first, whether you owe lenders money or not. Commit to loving the feeling of saving money. Commit to realistic budgeting. Commit to fixing the root of the problem right now.
Momentum matters, and taking these small steps will get you ready to tackle the next strategic and specific actions that will stop your debt accumulation in its tracks and wipe out what you owe.
