Profit First provides a variety of resources to help you pay off your debts. This approach reduces your financial stress and builds confidence by starting small before approaching the most intimidating debts. This process is repeated until all debts are paid off. The focus becomes paying off your smallest debt whilst paying minimum payments on all others, until the smallest debt is gone. The Debt Snowball approach involves listing your debts from smallest to largest and prioritises paying them off in the same order. Profit First utilises the debt reduction method, ‘The Debt Snowball’ in combination with multiple accounting banking to guarantee that your debt is diminished. This concept is known as the debt snowball. You can then utilise your profits account to pay down your debt each financial quarter. If you start setting your GST aside now, then it will be available and ready for next quarter. Start separating your finances by setting money aside for tax, owner’s pay, expenses, and profits. You can read more about Profit First percentages and learn how to use the Profit First Instant Assessment worksheet in our last blog post, ‘How Does Profit First Work?’. TAPs represent your goals and allow you to see more profitability and greater cash flow. CAPs represent how your current finances are split between profit, tax, owner’s pay, revenue and operating expenses. Profit First uses two types of percentages - CAPs (Current Allocated Percentages) and TAPs (Target Allocated Percentages). The next step is to determine your Profit First percentages and ensure that they are functioning correctly. Up to 99% of the Profit Account can be allocated to your debt to help pay it down (minimum repayments come from OpEx account) and the remaining 1% is yours. The profit account will be the account used to pay down your debt. You can find out more about the different accounts that are required for Profit First bank balance accounting in our blog post, ‘Profit First: Transforming Your Business for Guaranteed Profitability’. The framework of this strategy is to get started with Profit First with the one-time setup of opening the allocated bank accounts. The Profit First methodology is a strategic approach to ensure that your debts are constantly being reduced which guarantees that you will never be in this distressing financial situation again.
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