The first move in paying down business debt is to stop adding to it.
New borrowing keeps covering old obligations. The balance never actually shrinks. The plan to pay it off keeps getting pushed to next quarter, because there’s always something more urgent than the debt itself.
Once that cycle stops, here’s the mechanic I use with clients.
Set up a Debt Repayment account as part of your Profit First system. Every time a payout hits your account, allocate a fixed percentage toward that account before anything else touches the cash.
Start small if you need to, with one or two percent. Consistency matters more than the size of the allocation.
As you tighten operating expenses and improve margins using the other Profit First principles, you’ll have more cash to work with. That’s when the allocation grows. Three percent, then five, then whatever the business can actually sustain.
While that’s building, look hard at the debt itself. Not all of it is equally urgent. Line up every obligation by interest rate and terms. The highest-rate, highest-risk debt gets paid down first. A credit card at 24% and a term loan at 7% are not the same problem, even if the balances look similar on paper.
Sometimes the terms themselves can change. Lenders are often more willing to renegotiate than owners expect, especially once you can walk in with a clear cash forecast and a real repayment plan instead of just asking for relief.
None of this happens overnight, but it does happen, as long as the debt stops growing and the repayment account keeps getting funded, payout after payout.
If you’d like help building a debt paydown plan that fits your specific numbers, reach out and let’s chat about what that could look like for your business.
Cyndi
|
My biggest concern about my ecommerce business is |
|
|
|
|
|
|
|
|
Quick Summary
Paying down business debt with Profit First starts by stopping new borrowing, then setting up a dedicated Debt Repayment account that receives a fixed percentage of every payout before other expenses are covered. Start with a small allocation (1-2%) and increase it as margins improve. Prioritize debt paydown by interest rate and risk, not just balance size, and consider renegotiating loan terms with lenders once you have a clear cash forecast in hand.
FAQ
What is the first step to paying down business debt?
Stop adding new debt. If new borrowing is constantly covering old obligations, the balance never actually shrinks, no matter how much gets paid toward it.
What is a Debt Repayment account in Profit First?
It’s a dedicated bank account that receives a fixed percentage of every payout before any other expenses are paid, ensuring consistent progress toward paying down debt.
How much should I allocate to debt repayment at first?
Start small, even 1-2% of each payout. Consistency in funding the account matters more than the size of the allocation early on.
Which debt should I pay off first?
Prioritize by interest rate and risk, not balance size. High-rate debt like a 24% credit card should be paid down before a lower-rate term loan, even if the loan balance is larger.
Can I renegotiate business debt terms with lenders?
Yes. Lenders are often more willing to renegotiate terms than business owners expect, especially when you bring a clear cash forecast and a real repayment plan.
