Michalowicz argues that the Profit First system works for all business owners, even those with significant debts. He dissuades the reader from practicing financial “crash-diets” in order to relieve debt and instead tells them to methodically pay down their loans (116). He agrees with finance guru Suze Orman that to stay debt-free it is essential to build your love of saving money, making it even more powerful than your love of spending it. He urges the reader to celebrate when they save money and really feel joyful as they watch their profits increase.

Many entrepreneurs are optimistic, but it is essential to prepare for the worst. Rather than assume that their best sales days will continue, people should average their three worst months to prepare themselves more realistically for how low their revenue may go. By always putting a healthy percentage amount in their owner’s compensation account, they can take the same salary each month, even if it has been a slower sales month.

Next, Michalowicz explains his concept of the “Debt Freeze.” He recommends that companies in debt analyze all of their spending and mark each with Profit (an expense that creates profit), Replaceable (for expenses that can be changed) and Unnecessary. This difficult but necessary process will reveal which expenses must be cut. He recommends creating a leaner team of employees, since labor costs are some of the most expensive aspects of any company. While this is emotionally difficult, laying off staff is essential to saving money and getting out of debt. Michalowicz warns against ever cutting the pay of the remaining employees, as this is demoralizing and tends to cause people to quit. Michalowicz coaches the reader to save money in other ways such as negotiating lower prices for the necessary expenses.

While the Debt Freeze can feel overwhelming and embarrassing, Michalowicz promises that people will feel relieved when it is successful. He feels that successful businesses do not need fancy offices or status symbols, but a consistent profit enjoyed by all who contribute to the company. While some believe that being profitable is impossible while in debt, the author argues that using the profit first system to cut costs and generate some profit is essential, or else other Band-Aid solutions like further loans will only mire indebted entrepreneurs further. Never get out of old debt by accruing new debt, instead, implement the Debt Freeze and begin paying it off. If you have multiple debts, start with the smallest one to build momentum and confidence. He points to the real-life example of his friend Pete and how he used the debt freeze to pay off $1,000,000 of business debt, saving his company and career.

The author’s advice on debt continues his broader argument that small and incremental progress is the way to change one’s spending habits and build profit while also paying down loans and other debts. By pointing to the real-life example of his friend Pete, the author suggests that if this method could work for people with huge and urgent debts, it can also be highly effective for more everyday business debts. The author connects how Pete carefully followed the steps of the Debt Freeze method and the fact that he is now thriving once again. He writes, “Pete was, understandably, a quivering wreck when he called me that night many years ago. Today he is the epitome of confidence” (128). This implies that not only will the business grow its profits, but the owner will have a positive personal life change by using Michalowicz’s system.

Michalowicz’s approach emphasizes frugality. By repeatedly discussing the  importance of cutting back costs, the author presents cuts and layoffs as the only immediate solution to freeing up revenue to pay down debts and slowly build profits simultaneously. By celebrating the good results frugality brings, the author asks the reader to think beyond the superficial status symbols that make their business seem successful and consider how cutting costs will make their company more genuinely profitable. He explains, “Make the game of winning based upon efficiency, frugality, and innovation, not on size, flair, and looks. We are on a mission to change the perspective of successful business from ‘make a lot’ to ‘save a lot’” (128). This passage motivates the reader to take a hard look at their company’s finances from a more frugal perspective.

Chapter Lessons

• Never create new debt to pay off old debt
• Pay off your smallest debts first
• Track every expense, cutting unnecessary ones and renegotiating the essential ones

Reflection Questions

• Consider your own business. Does your current approach emphasize flair and looks or efficiency and frugality?
• Follow Michalowicz’s method of analyzing expenses. How many are problematic? How can you cut or renegotiate them?
• Which aspect of the Debt Freeze would be the most challenging for you, personally or professionally? Do you think it would benefit you in the long term?