Managing Biz Finances Can Be Fun with Melissa Houston

Jaclyn Mellone  

Welcome to Go- To-Gal episode number 171. As always, I’m your host, Jaclyn Mellone. And today we’re talking about one of my favorite topics. Just kidding. Now one of my favorite topics, but we are talking about it with one of my favorite people, which does make it fun. And for me, if you’re like me, managing business finances, it sounds like: Ooh, managing it. No, it’s not fun for me. I don’t know, it stresses me out. It used to stress me out a lot more. I’ve come a long way. But still, I would be lying. If I told you it didn’t still stress me out. We got to keep it real around here.  

But I will say one of the things that have helped me the most because I’m one of those people that used to joke I can’t Math. And then, my mindset has gotten better. I can math, I just don’t like Math. It makes me think about it, I think I told this story on one of the episodes where I was talking about my journey with ADHD. But I always struggled with math in school. And I don’t know, I always did enough homework or showed up enough where I was able to get a decent grade. 

One year, I think it was my junior year, I got a 66 on the New York State regions, which was a solid B plus student overall. Having a D on my transcript that I was going to apply to college with was just horrifying.  I wasn’t even though it was technically passing. I’m like: Okay, I can’t. I can’t let that stay there. That summer, my parents got a tutor for me and I met with her twice. And then I was able to retake the regions. After those two sessions, I took that same different but same concept of a test that summer and got a 93. 

For me, sometimes it’s just having someone break things down, and one on one. At my own pace where I can be like: Oh, that’s all the puzzle pieces go together, right? And with math, once you get those concepts, you just keep applying them. I’ve used that same strategy in my business when things start to get overwhelming, or it’s one of those up-leveling things. Because the more money you’re managing, the more expenses you’re managing. They can almost prevent you from up-leveling because at a certain point, it’s like: Oh, a lot is going on here.  Hiring people to help me to understand it, to manage it to whatever has been such a game-changer for me. Now, I thought to bring Melissa on today, because maybe you’re at a point where you’re hiring people to help you with stuff like this. Maybe you’re not. Maybe you don’t even know some of the conversations you should be having, or what things look like at different levels.  I just think it’s really important.

I was going to say healthy, it’s probably healthy, too. But I think it’s important for us as especially women entrepreneurs, and don’t talk about money enough, and not just: Oh I have a six-figure launch. But, how are we managing this money? What does that look like when we say that?  I wanted to bring Melissa Houston back if you missed her, she was on the podcast last month talking about her journey of really scaling her business over the last year and a half, mainly through publicity.  But I wanted to bring her back to talk about her area of expertise, which is managing your business finances, and have that kind of girl chat around. This is not a tutorial. But to really talk about what does that mean? 

What should we be doing, looking for, and peel back some of those things that maybe you are not having these conversations on your own? I don’t know.  Friendship masterminds, I wanted to give you a chance to hear Melissa and I chat about it and hopefully answer some of those questions. And if not give you enough to: Oh, I need to look more into that and go find the answer next. That is today we are talking all things business finance.  What does that mean, talking about business finances? We’re going to cover a lot in this conversation. 

We’re going to touch on a little, what it looks like when you want to change your business model, habits that are good to have in terms of managing your finances and your business.  How you can make it fun, hidden costs. Have a look behind some of these bigger. Launches you might be seeing cash flow, paying yourself. We cover a lot. Before we get to it, though, I want to formally introduce you to Melissa. Melissa Houston is a CPA and business finance coach who has over 20 years of experience helping entrepreneurs with their business finances. 

Melissa teaches her signature CFO money method, a signature framework through group programs. Melissa is a regular contributor at forbes.com and is the host of “Think like a CFO Podcast”.  Alright, let’s get to it. Here’s my conversation with Melissa. Melissa, I’m so excited to have you here today. 

Melissa Houston  

I am so excited to be here. Thank you so much for inviting me, Jaclyn.

Jaclyn Mellone  

Yes, I know, this is your second interview in two months. That’s a record for speed, coming back as a guest.

Melissa Houston  

Because I got a lot to say.

Jaclyn Mellone  

I have a lot to ask you. I think this is a really good question here. But before we dive into that, take us back in time to when you were growing up, what were you before the Go-to-Gal for back then?

Melissa Houston  

I was thinking about that because I knew you’re going to ask me that. I was always the Go-to-Gal for an honest opinion. All my friends would come to me and say, I know you’re going to be honest, even if I don’t like the answer, you’re going to tell it to me straight. And that’s what I always did. And I still live by it.

Jaclyn Mellone  

I was going to say I can see that about you.

Melissa Houston  

I tried to say it with love.

Jaclyn Mellone  

Absolutely. Fast forward to today, tell us what do you do, and who do you help?

Melissa Houston  

I am a chartered professional accountant, which is a CPA for those who are aware of that. And a business finance coach. What I do is help entrepreneurs understand the finances within their business. And I really try to take an approach to make it sound a lot more fun, or for it to be a lot more fun than it sounds. Because a lot of people like finances.  I don’t want to know about finances. I’m getting by, it’s all good. That is not the way you should be dealing with your finances. I’ve got over 20 years of experience helping entrepreneurs and business owners and I have seen it all. I feel that there’s a need for financial literacy skills for all entrepreneurs.

Jaclyn Mellone  

Well, you know that I love how you bring fun into this. Because finances are not always considered fun. Dare I say that?  I love that you embrace this and find ways to make it fun for especially people like me that need that. But seriously, how can it not be fun? It’s your money, you’re managing your money. How is that not fun? Everybody loves money, right? And they think like: Oh, if I’m rich, it’s so fun and stuff like that. And if you could manage your money to make yourself a lot more money, how can that not be fun?  Well, I’m not going to like to argue with you about it. 

Melissa Houston  

I will agree with that. But it’s kind of I’m trying to get you in a little different mindset where you’re like: Oh, I love it, you know, let’s be a little excited. Because this is about my money, and I want to make more money. And I understand if you’re not motivated by making a lot of money. But the sheer idea of knowing that you could be making more money with less effort, if you were managing your business finances and your numbers, would that appeal to you?

Jaclyn Mellone  

Sure. Here’s the thing about me, it’s not that I’m not motivated to make a lot of money. Logically, yes, I would love to, like more money so there are more people I can help or things, I can do all of that. But literally, my motivator that I have no control over has like: I’m not, I am not motivated into action by the idea or results of money.  I wish I could vote like that’s just not where my motivator is. A lot of people do have that as a motivator. And I didn’t even realize this about myself. A past boss kindly pointed out to me when I was in a sales position. He’s like: You’re not motivated by money, are you? And I was like: I always thought I wasn’t it. It gave me that opportunity to self-reflect, and to realize that.  Some people are motivated by money, some people aren’t. I don’t think we have any control over what motivates us. But I think that’s where finding that way into the money conversation of what can motivate me to get this together or to have better habits around this or just to be more proactive or whatever that angle is, I think, is essential, right? Because as business owners, we can’t ignore this. 

What I will say is knowing that we have that solid foundation is going to help us be able to grow not just logistically, but also I think the mindset of just knowing that we’re prepared for that. Right? Absolutely. Because if you think about it, and you’re losing money in your business, that’s sort of a total de-motivator right there for your business to continue. 

As entrepreneurs, we always have these challenges coming at us on almost a daily basis. If you’re putting a business out into the world, and you have no idea if it’s profitable, you might want to take the time. I’m not saying you specifically. People, in general, might want to take the time to make sure that we are making money at the very least breaking even so that we’re on to something. Absolutely. I’ve had that experience of both the end of the year going and being like: Oh, wow, I didn’t realize my expenses were that high. But also like: Oh, wow, I didn’t realize that. That program made that much money. 

Not having that relationship with money, where I was having those habits unaware of it, I was surprised on both ends at different times. Again, and both ends definitely have their pros and cons. For example, it’s great that if you have those years, where you’re like:  Wow, I made more money than I thought I would. But if you’re not following your financial plan, then you’re not planning for the taxes that you have to pay on that money that you made. Then what happens is, if you spend the whole year, not knowing what’s going on in your business, you were lucky enough to make a big profit. 

Melissa Houston  

You go get your tax return completed, and you realize: Oh, wow, I owe $20,000. Where am I going to get that, because I didn’t see that coming? If you’ve got a financial plan in place, a financial system, to monitor all this stuff, you would know way ahead of time that you have this big tax bill coming. You would have the systems in place to ensure that you’re saving that money, so you can pay the bill, because the thing about the IRS, they don’t wait for anybody. If you don’t have that money, they’re going to start charging you interest if you don’t meet that deadline. And you have no choice but to pay. 

Jaclyn Mellone  

So true. 

Melissa Houston  

And its extra stress for entrepreneurs, right?

Jaclyn Mellone  

Absolutely. Absolutely. And you can try to say: By keeping it at arm’s length, it doesn’t feel as stressful, but it absolutely does. Maybe you’re not thinking about it every day, but it’s still there. I can speak from personal experience that getting systems in place for this, getting more up close and personal with it helped me feel more confident, more secure. When you feel more secure with things, even if it’s not always what you expect, I think that puts you in a better decision-making position. Absolutely. And I never argue that you can totally hire a bookkeeper, hire people to advise you on how to do your finances. Typically, that would be a professional accountant. You’re going to hire somebody to help you with your tax return. It’s okay to check out your business. Just because you’ve got other people helping you with your finances doesn’t mean that you shouldn’t know what’s going on a day-to-day basis.

Melissa Houston  

When you know your finances, and you know, your business numbers intimately, that allows you to make confident business decisions. Decisions that you’re making, the profitable, you know that. You’re going to be making money off this weather, and you’ll know how much. If you’re not motivated by money, but you’re motivated by the idea of not going broke, you can make sure that you are not going broke, but and if you are motivated by money, you can look at your numbers and see: Okay, this is where I’m doing well that I’m going to capitalize on this.  

This is where things aren’t going so great so I can make improvements. Let’s say you’re selling products, and you realize: Oh, my expenses are much higher than what I’m charging for my product, I think I need to raise my prices to be profitable. You think that you’re not spending so much money on Facebook ads. But when you start tracking it, you realize: Oh, I blew the budget there. I should not do that. Because I’ve heard so many stories of entrepreneurs just completely blowing their budget on Facebook ads, or just advertising means in general or anything. You just really have to be cognizant of where your money is going to manage it well.

Jaclyn Mellone  

Absolutely. And I will say from personal experience, and this is something I’ve seen with clients too: If you’re like me, and you’re not money motivated, even just like: Let’s not be motivated by not going broke, because I will say that one that looks different at all stages. But I’ve even I’ve had a client recently who thought her kind of set point like: I need to make at least like 20k a month. But when we started looking at her goals and what she’s doing, her comfort level is 30k a month. Sometimes we think like as our business grows, like: Oh, I need to bring in and maybe for you it’s 5000 a month or 10,000 a month or whatever, wherever you are in your business, for those of you listening, as we grow, that number grows, and things change and how we’re paying on our team changes or our lifestyle changes at home. 

Being motivated by not going broke can keep us at that lower threshold. I think sometimes that’s been one of the mindset shifts that, I don’t know if I ever had that as my set point of not going broke. But I had to shift my mindset in terms of just where my goals were and what that set point is for me of like: Okay, I’m not going to go below this. Yes, absolutely. But as you’re talking I’m thinking like: Making money, it should be like something that’s celebrated, right? A lot of people, when you’re talking about money mindset, a lot of people feel like: I can’t make a lot of money because it makes me feel greedy or it makes me feel bad. For whatever reason, maybe your parents don’t make a lot of money or your spouse doesn’t, or whatever. I asked people to look at how they feel about money in general because everybody has a money story.

Melissa Houston  

Chances are your earliest money memories are from your earliest memories, period. I think the point I’m trying to make is that we make a lot of money. That’s not a bad thing, right? You can do a lot of really good stuff with money. You can donate, you can create different programs that help people. There’s so much you can do when you’ve got money. And there’s one of my most favorite quotes is if you heard the book “Millionaire”, I think it’s called “Millionaire Mindset” or something like that, but it’s from Herve T. Acker. He speaks about the fears of people having a lot of money. 

A lot of people fear:  What if I turn into a jerk if I have a lot of money and stuff? I just love this quote. He’s like “If you’re a nice person before you get rich, you’ll be a nice person after. If you’re a jerk, before you get rich, you’re just going to turn into a rich jerk.” People who fear having money, it’s like: No, there’s just so much potential you can do with money. There’s so much good in the world coming from that.  I encourage entrepreneurs to think a little bigger than maybe limiting themselves to 10, 20, 30, whatever it is, per month in revenue. 

As your revenue grows, your expenses are going to grow as well. A lot of people, well, a few of my clients have said to me: Okay, I want to make, let’s just say $10,000 a month, and I’m like: Have you considered is that $10,000 that you want to keep in your bank account, or is that $10,000 in revenue? They think it’s revenue. But then when they understand that there’s a cost in all the sales that you make, and you subtract the cost coming in from that revenue, what you’re looking at is you want to keep $10,000 worth of profit for yourself.  

That’s very different from revenue, and you need to plan accordingly. When you create these goals for yourself, it’s like you have to reverse engineer to make sure that you’re capturing everything into your financial plan to ensure that you will reach $10,000 worth of profit every month. Well, this is the perfect lead and then, tell us about this financial planner. What is this financial plan? What do we put in there? Because you’re spot on with all of this, and I think we do need to be thinking bigger. In my first year in business, I actively actually think this was like something I would say, in my marketing. It was like a firm stand, but I was very much like: I don’t want to make a million dollars in my business. It was kind of the antithesis of what everyone else online was saying.

But I had a big change of heart with that after being in business for a little bit. And I realized that in my mind, I attached this meaning to what having a seven-figure business looked like. I thought of that is that I’d have to work a certain amount of hours and that it would be a lot of pressure or like a lot of responsibility. But it probably is a lot.  As from where I was, as it’s like a baby business owner, I wasn’t realizing: It’s not just you. You can hire a lot more support, and surround yourself with a lot of smart people that can help you in these areas and take things off your plate. 

You don’t have to be working 80 hours a week to have a seven-figure business. In fact, it is making more money allows you to work less, and that took me that first year of business to start seeing that differently. I think that’s important to surround ourselves with different people who are maybe growing their businesses in different ways we realize different opportunities are available. But that’s it. What is this financial, or if you want to respond to that, but I’m like: What is this financial plan look like? Yes. I’m going to tell you about the financial plan, and I made it but the first thing I want to respond to is people often talk about multiple six figures, seven-figure businesses, and stuff. I really want people to be aware of that. 

You can make seven figures in your revenue for the year, but it doesn’t mean that your business is going to be profitable. And you would be surprised at how many businesses I have seen over the years, that are multimillion-dollar businesses and they go bankrupt.  The reason they go bankrupt is financial mismanagement. It’s 87% of businesses go bankrupt every year because of financial mismanagement. That is definitely something that people, entrepreneurs, need to be aware of. That’s a vested interest. You don’t want to go bankrupt.

You want to keep your business for a long term, you got to pay attention to the numbers. Then what I do is one of the steps I teach clients in my programs is creating this financial plan, and this is essential. This is like the heart of your finances.  If you have another thing, I often say is: A goal without a plan is just a wish. If you’ve just got a goal, and you’re like: Oh, I want to make six figures this year. Going back to what I said before, is that before or after expenses, is that before or after taxes? Are you paying yourself? Are you keeping? You really have to create an idea, like a goal that you want to get to. And then to put that goal into a plan, that’s what I really help clients with is breaking down that plan. Typically, what you do is you, reverse engineer. If you’re somebody who wants to make $100,000 in a year, and that’s in profit, you’re going to plan that out in reverse. What do I need to achieve $100,000 of profit in a year?  

You’re going to break it down month by month, from January to December. Let’s just say you’ve decided to create this for simplicity’s sake at the beginning of the year.  As I mentioned earlier, for every sale there’s an expense tied to it. You’re going to have cell phone bills, maybe office space if you’re renting. You’ve got your internet expenses; you’ve got your website maintenance. This, that, the other, tons of expenses go into maintaining your business. You need to list all those out. You need to understand how much it’s costing you. You’ve got coaching if you’ve got a coach that you pay for. If you’ve got office supplies. Anything, travel, anything, eventually the world.

Jaclyn Mellone  

Yes, all these recurring SAS subscriptions.

Melissa Houston  

Yes, exactly. It’s not cheap to run a business. You list all those expenses, and you list them out month by month. Don’t forget about those expenses that come up, maybe once a year. You plan those out too. What you’re going to do is, you’re going to determine. If I’m making or if I’m spending $5,000 a month to maintain my business and keep it going, how much revenue do I need to bring in to make sure that I’m getting $10,000 worth of profit, or whatever it is, per month?  That’s how you break it down.

Once you come up with your full-year plan, it’s fantastic, because then I see now what it takes to achieve that goal. You’ve got it mapped out for the year.   And then the other step is the key, which is monitoring your success each month. Let’s say, you plan on bringing in $15,000 of revenue, with $5,000 of expenses, to have $10,000 of profit. That was your goal for January. It’s the end of January, you’re going to measure what you planned versus what happened. So that if you fell short of your revenue goals, you know that you need to hustle the next month to make up for it. 

 If there’s some sort of problem there, you’ve identified it and you tweak it. When you get this feedback, that’s when you know how you can correct things before they become huge money leaks.  If you’re looking at it, in December: Wow. If I had known that back in January, look at all the money I would have saved. Look at all the heartache I would have saved myself or stress or whatever the case may be.  You’re going to monitor your expenses as well. If you’ve planned that you’re paying $5,000 in expenses, but it actually turned out to be seven or eight, you’ll know it.

Then you’ll know, I need to pull back on some expenses and may need to save money if I want to make that profit that I planned for. The only way you’re going to know what’s going on is by checking in. There’s a lot of benefit to checking in. It’s your financial health. It’s your financial well-being. This is your business. Ideally, you’ve created this business to support yourself, and you also have to pay yourself. Everybody needs a living salary. Being on top of all that is super important.

Jaclyn Mellone  

Yes. I love how you broke that down. To look at it over the year. Project that out, what our expenses are? What would you say for someone who is switching their business models? I know a lot of people in our Go-To community. We have a service-based business and they have a certain amount of clients who are paying them to do, done for you work, or on one work, but they’re starting to do behind the scenes work on launching a course. They know that is coming up. Okay, that could be this big, maybe launch in the middle of the year.

Maybe they’re hoping to eventually switch that business model. When maybe the revenue and even some of these expenses, may not be predictable.  I guess that’s like with the speed of online business. A lot of times our growth can go exponentially. One month to the next, or not, or the other way, one month to the next. All sorts of expenses. I’m going to have this launch, before you know it, we’re hiring designers and copywriters and ads strategists and all this stuff. Are there adjustments to this plan that can help account for some of these more variables?

Melissa Houston  

Absolutely, by planning out, a year in advance, it’s just a plan. It’s definitely adaptable. Six months into it, or whatever, you’ve decided that you’re going to introduce a new revenue stream. You just have to make sure that you create a plan for that revenue stream as well.  And launches are expensive. I’m glad you brought that up too. Quite often I hear entrepreneurs talking about their seven-figure launch success. I think to myself, being the accountant that I am, that seven-figure means nothing to me.  Tell me how much you made. Tell me how much you have to spend to make a million dollars on your launch. The reality of it is like you said, there’s copywriting, there are Facebook ads. Tons of expenses go into a launch. It really is not uncommon.

It sounds shocking, but I swear, it’s not uncommon to hear that a seven-figure launch netted nothing, or maybe $10,000.  It’s a lot of work to put yourself out there and to get those sales in. Sometimes it’s a breakeven. People have to be, and that’s before you’ve paid yourself. People have to be really aware of controlling the costs in their launch. You can’t go all crazy thinking that you can keep up with some big entrepreneur, let’s say, Amy Porterfield or something. She attracts huge audiences. She’s going to sell a lot of courses. If you’re starting, you think that you have to present at that level of a launch, you’re going to be in for a big surprise. You want to control your costs.

 I’m sure her launches costs, like thousands and thousands of dollars.  She’s probably got a very well-oiled machine, and she’s probably very profitable. But when you’re starting, you don’t know what to expect, either be a hit or could be a miss.

Jaclyn Mellone  

So true. Well, it seems like a lot of those entrepreneurs that have these big launches once a year and seven-figure launches have something on the back end. That they’re upselling to you too, that I’m sure is much more profitable. It’s almost like their front-end offer is this course, that’s a couple of thousand dollars, but on the back end, they’re upselling into a mastermind or some type of experience like that, that can be $10,000, $20,000 or even $30,000. That’s kind of the invisible funnel that people don’t see you from the outside.

Melissa Houston  

So true.

Jaclyn Mellone  

Especially when you factor in affiliates. It’s interesting this year, Amy Porterfield and Marie Forleo, who typically launched with affiliates, did not, both of them, did not launch their signature offers with affiliates this year. Is that right?

Melissa Houston  

That’s right. I know. That is interesting. Yes, both of them always like the whole internet is talking about their launches. This year, they announced it to the whole internet, wasn’t that but it wasn’t like that from people that are already subscribed to. I haven’t heard either one of them talk about this, but just as an observer in the space, I thought that was interesting. Also, with someone who, one of my signature offers, the one Farnoosh and I have, for our new podcasters. In the podcast, we do partner with affiliates. It makes sense for us to do that. But absolutely, it cuts into our profitability, but it also ensures that we’re getting leads in from people that have really aligned audiences. Those leads convert really high because they’re referrals essentially.

Jaclyn Mellone  

Exactly, they’ve been referred by someone they trust already.

Melissa Houston  

It’s interesting, everyone has to make their own decisions. It’s interesting. Okay, this is such a trend in the industry to do affiliates. I’m curious, pendulum is going to swing a different way because it cuts into profitability.

Jaclyn Mellone  

Yes, I wonder about that. Is it profitability or is it because, I don’t know, I could take that conversation in a different direction and I won’t. Is it a trust factor?  That’s another thing that kind of comes to my mind when you hear the big names that have decided not to use affiliates anymore. Given the current climate, the cultural climate that we’re dealing with lately. Maybe it’s, I don’t know, maybe it’s a decision about, trying to go solo on that.

Melissa Houston  

Maybe. But I feel like those decisions were made before, maybe the climate started to change. But the climate is probably being changing for a while. The industry has changed a lot over the last year. That could be part of it. I also think about it as, their audiences are probably quite large, are legitimately quite large. Launching to their existing audience, they probably know their numbers of what they could get, with Farnoosh and I, we’re not as actively building an audience yet of people who want to start a podcast. That’s not our focus.

Jaclyn Mellone  

Yes. I see what you mean.

Melissa Houston  

Partnering with affiliates is okay that way. We’re selling to our existing audiences, but more of our traffic for that is going to come from our partners that can send people. If they have a small portion of their audience who is interested in this. Okay, great. They’re going to refer them to us. That’s where it makes sense for us, but I can see if you already have. Amy probably has a million people on her email list, literally. She probably has a million. A couple of years ago, it was like 600 something. I’m sure it’s a million people. If you already have a million people in your email launch, to your email list, right? I don’t know.

Jaclyn Mellone  

This s is why I love talking to you. I’ve said it to you before and I’ll say it on air. You are brilliant. I love the way you think.

Melissa Houston  

Well, I think you’re brilliant in different ways. You are brilliant. Telling me all this stuff. We got a little bit of track, but not really like in terms with these launches. A lot of times people talk about expenses in terms of marketing, Oh, okay, I spent this much on ads, or I hired a copywriter designer to build out these sales pages. But there’s also operation. You have to deliver the program. Nobody really talks about that part of it, which I find really fascinating. And something that especially because my business is probably a little bit more complex because I have a partnership with Farnoosh with running different programs. And then I have different components of my own business. I have a team member who is on my team, but she’s also doing work for Farnoosh and me, so that is invoiced separately. And we keep that separate. I can see her hours separately divided between those things.  But when it comes to my own business, it’s a little bit muddier of where team members are spending time and different things. And to really look at the profitability of a quote-unquote, the launch is also to look at what is our operational expenses to deliver this program? Because that also ties into what the expense of the launches. How does that fit into the plan?

Jaclyn Mellone  

If I’m understanding you correctly, it sounds to me you need to time-track. If you’re interested to know how much time your team is working on the different components of a launch or just different tasks in general, they’ve got time tracking software. Where they’re going to start a timer when they start working on a launch and stop the timer. And then at the end of let’s say, a week or something or even a day, you just collect the data, and you bring that into the expense part of your launch.  Whatever time they spent working on the launch, you’ve calculated that for time, and you can quantify it through charging an hourly rate, and then boom, you’ve got the cost of having your teamwork on that launch. Those are important factors to track too because a lot of the times that would escape people’s thoughts. They would just be focusing on the direct costs. 

But when you’re talking about indirect costs, and I don’t want to get overly confusing, that is an indirect cost, but they still have to be costed into what that project is that you’re doing, whether it’s a launch or whatever.  But yes, you have to factor in these times. And also, if they’re working on the course rollout, as well, you have to factor that in, because that is a cost for the program that you’ve just launched. In the end, you may find: Wow, I put all this effort, time, and money into a launch, and I don’t think it’s profitable. Then you can work on ways to increase the profitability.

Melissa Houston  

Exactly. That’s where I think it’s this. Okay, the launch is one thing, but then we’re running the program. What are those recurring expenses of running the program? How many hours are my team members putting into supporting our students or clients in that program? What does that all look like?  I think that also helps in terms of figuring out what you need to be pricing those programs at. As well as: Okay, maybe this program isn’t profitable. Maybe I shouldn’t be offering this program.  It looks like there’s a lot of money that’s coming in from that. But at the end of the day, not so much. That’s I know that this definitely happened to me in the past where I was: Oh, this seems like a really great idea. But then at the end of the program, realizing: Wow, when you start looking at how much my team has invested in my own time. Is that something we should be looking at of how much time goes into it? Because I don’t really think I am but it really is.

It really hands even though you’re not paying yourself you should really be factoring in because your time is money in a sense like it’s currency. And see, I’m such a money nerd. What I do is, I have four or five different offers. I track them all separately and then roll them up into one big pink spreadsheet, so I can see how profitable my business as a whole, and then how profitable each individual offer is. Then if I’ve got let’s say my CRM system, which would cover all of my offers, I just divide that cost by five and plunk it into each project that was offered that I have.  

This is like Management, Accounting 101. This is what I love to talk about with entrepreneurs too. Because when you start seeing how profitable each offer is, and you think maybe your course launch is the most profitable because it brings in the most revenue at that one time of year or whatever. But you realize, when you’re looking at all projects that you’re working on, that’s not what’s happening. 

And your most profitable program could be your one on one or your group program or whatever. Then you can start putting your energy towards the most profitable offer that you have, and really promote that instead of writing that hamster wheel. Trying to get more money in the door, trying to get more money, and then it’s just going out as quickly as it’s coming in. Focus on the really lucrative things, and then you’re working smarter, and you’re working less. I’m not trying to suggest one on one is the best way, I’m just using that, as an example. 

Jaclyn Mellone  

A lot of my friends, peers, mentors at my level, don’t do one-on-one. And it’s kind of this badge of honor, like Oh I don’t do what I want anymore, to say very lovingly of them. But here’s the thing, I love one on one. It’s the most profitable. If I hated it, if I resented my clients for that time on my calendar I would stop it. But I have a handful of clients. They’re all a joy to work with. I get so much fulfillment out of that one on one work. It is not energetically draining for me at the level, which I’m working. And it’s massively profitable. Absolutely.  It makes sense right now. Doesn’t make sense forever? Probably not. But for now, that is something I’ve decided to keep because of that. Absolutely. 

Melissa Houston  

Profitable, not scalable. 

Jaclyn Mellone  

Yes, exactly. But this year, it’ll likely be a six-figure revenue stream on its own in my business, and costs associated with it are very minimal. Yes, exactly. When you look at that versus other revenue streams in my business, and how much cost is associated with that? It’s dramatically different. Yes, it’s not scalable, too infinitely but that yes, it certainly makes sense. 

Melissa Houston  

Yes. I have a client who came to the realization, she’s launched her program, I think, three times. She came to me last week, and she said: I can’t do this anymore. I hate it. For her, It’s the energy just gets sucked out of her, and it’s just too hard on her system. Is it a payoff to keep wanting? No, not really just look at different options. So true.

Jaclyn Mellone  

Okay, so let’s talk cash flow because I know this is something you always want to talk about. But first of all, what’s it like? It seems obvious, but I know that there’s nuance to this, so just explain to us, when you say cash flow, what are you talking about?

Melissa Houston  

What typically happens with entrepreneurs who are not managing their cash flow well is that they’ve got their bank balance. They check-in to see how they’re doing by their bank balance. They’re: Okay, I’ve got this amount of money in my account, I must be doing well, so I’m going to spend it. And that’s not the way to manage cash flow. Because what happens is, you have to time the cash that’s coming in your account, and out of your account, because you’re always going to have business expenses that you have to pay.  If you’re not keeping track of when they’re due, you could come into the problem of not having the cash to cover it.

Part of having a wholesome fulsome accounting system or financial management system is to ensure that your cash is being managed properly.  Typically, what that entails is keeping tabs, six to eight weeks ahead of time, and you’re documenting when clients are paying. What bills are due and on what day? Because there tends to be sometimes an overlap where client A isn’t paying until after invoice D is due, and you’ve got that overlap and you’ve got this cash shortage. It’s really important to keep your suppliers happy.  Whether your supplier is your phone bill or your internet or whatever, or something more serious where you’re a product-based business and you’re relying on your suppliers to deliver. It’s all about having good well-managed relationships in business, and cash management is a huge part of it. Unfortunately, cash management is the main reason why businesses fail due to mismanagement of finances. Cash dries up, so does your business.

Jaclyn Mellone  

 At ties. We could probably talk about this all day, but just the two things that pop into my head about this are one: What about the business that is either just not consistent by the inherent nature of the business, or maybe they’re pivoting or whatever it is? Maybe they’re just going through a hard time. And they’re: I don’t have any idea how much money I’m making the next couple of months. Or it’s like: Okay, I know, this month, much is coming in. But I’m hopeful or planning on making a lot more because of this or that. How do you manage cash flow in those situations and the thing that comes into my mind? I’m just going to ask it. When is it okay to maybe use credit as a bridge for those scenarios too?

Melissa Houston  

Credit as a bridge is going to be helpful when you have no cash to meet your commitments. But when you’re talking about managing your cash flow throughout the year during the high times and low times, this is part of the planning process where I always get people to set a salary for themselves. A minimum salary that they need to pay themselves so that they can live and meet their financial expectations.  Then what you’re doing is on the good times, you’re putting that cash in a reserve, so you’re not spending it. It’ll be there for the bad times, and It’ll help you through the harder times when you’re pivoting or when you’re, even if you want to take a summer off or whatever the case may be. You’ve got that cash in the company, so it can carry you through. 

Jaclyn Mellone  

So smart. Then the opposite of that is sometimes there’s a big influx of cash, and it can almost be intimidating, or it can be tempting to just be: Okay, I’m going to get myself big bonuses. 

Melissa Houston  

Yes, for me, it’s tempting. This is really where the discipline comes in. You have to discipline yourself. You have to say: Okay. There are going to be rainy days ahead. I need to keep a certain amount of cash on hand to get me through at least six months of expenses. Because you’re pivoting or you don’t like pandemics. We’ve all learned a major financial lesson is having that cash reserve will help you get through things such as pandemics. It’s really important to have cash planning in that sense as well. 

Jaclyn Mellone  

Yes. You mentioned paying ourselves. Do you have a rule of thumb for how much or what percentage we should be paying ourselves?

Melissa Houston  

It’s part of the planning process. Typically, if you require $5,000 a month to meet your mortgage, your food, and all your expenses, just to keep your family going, whatever, then you know in your business you need to clear at a minimum of $5,000 a month. It’s going to depend on each person and what their financial needs are. And then some people really want to have more of a cushion, or they want to pay themselves more than strictly what the minimum needs are to get by.  This is where tax planning comes in really handy. And I’m not a tax accountant. But I do understand the tax strategies, and there are so many ways that you can set up your business so that you’re making really smart decisions and saving money from tax savings and stuff. I highly recommend people work with tax accountants to come up with really good strategies for that.

Jaclyn Mellone  

Such a good template. I wish I could just pick your brain all day on this stuff. But I have to wrap up. Serious though, you’re so brilliant, and I love your assessment of everything.  I know that these are questions that come up a lot. I really appreciate you sharing so candidly, all of these things, and also full disclosure. We ran out of time the first time we recorded this so I had to ask you back to be like: Wait, I read more questions. We got too chatty, and we got some interruptions. That said, how can we stay in touch with you?

Melissa Houston  

I would love for you to check out my podcast, Think Like a CFO. There’s tons of valuable free advice on that podcast. And you can find me on my website at melissahoustoncpa.com.

Jaclyn Mellone  

Amazing and you have a great freebie too. That’s a good resource. 

Melissa Houston  

We do. When you get to melissahoustoncpa.com, right on the homepage, you can download a free guide called the Five-Step Roadmap to Biz Finance Freedom, and that is a great resource to help you and guide you into creating a business that is completely understandable for your finances and totally profitable. Who doesn’t love more money?

Jaclyn Mellone  

I love it. All right. Thank you so, so much Melissa. Thank you so much for having me. Can I just say thank you so much for listening? I don’t think I can say it enough. But I love that you are here. If you enjoyed today’s episode or if you’ve been getting value from this podcast, do me a quick favor. Head on over to iTunes and leave a rating and review.  When you leave a rating and review it tells iTunes that they need to spread the word and tell more people about this podcast and I am on a mission to get the word out. I’m so grateful for your support. We want to make sure to shout you out too. So if you do leave a rating review Keep your eyes and ears open. We will be either shouting out the podcast or an Instagram story.