Jan. 18, 2022

How to Improve Your Financial Literacy and Money Management with Melissa Houston

How to Improve Your Financial Literacy and Money Management with Melissa Houston
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Do you feel like you have a good handle on your business finances and money management?

In today’s episode, Houston is sharing how entrepreneurs can improve their financial literacy. 

Melissa Houston is the founder of The Fractional CFO Agency, a columnist at Forbes.com, and the host of The Business Society podcast. A licensed Chartered Professional Accountant (CPA), she’s a Financial Strategist for CEOs and she helps successful business owners increase their profit margins without having to increase revenue so that they keep more money in their pocket while increasing their personal wealth.

So if you’re ready to improve your financial literacy, tune into today’s episode.


●  The difference between profit and revenue and why revenue without profit doesn’t matter.

● What is a good profit margin to aim for, and why the industry you’re in matters for distinguishing your average profit margin.

  • Why getting a grip on your cash levels is important and why it’s vital to manage your cash flow to avoid financial trouble.

● The biggest mistakes entrepreneurs make when it comes to money management.

If this episode inspires you in some way,leave us a review onApple Podcasts and let us know your biggest takeaway– whether it’s created those aha moments or given you food for thought on how to achieve greater success. 

And while you’re here, make sure tofollow us on Instagram@creativelyowned for more daily inspiration on how to effortlessly attract the most aligned clients without having to spend hours marketing your business or chasing clients. Also, make sure to tag me in your stories @creativelyowned.

[FREE MASTERCLASS]:Learn how to stop sounding like everyone else and craft killer messaging that gets you known as a leading expert and calls in the *right* clients and opportunities effortlessly, sign up now!


To apply for Elevate, an experience for coaches & consultants wanting to craft & scale their offers that sell on autopilot using attraction marketing,click here!

To get your hands on how to write content that connects, and attracts the most aligned clients,grab it here!!


To connect with Melissa:

Website: https://www.melissahoustoncpa.com/

The Fractional CFO Agency: www.thefractionalcfoagency.com

Instagram: @melissahoustoncpa


Hey hey, Kathryn here! I’m so glad you’re tuning in. If you’re new to the show, welcome. I’m so glad you’re here. If you’ve been around for a bit, you know I’m all about keeping it real with you. Showing you all the sides of entrepreneurship (& life). I mean it’s all connected, right? 

I shared one of my favorite Brene Brown quotes,  if you’re not in the arena getting your ass-kicked, I don’t want your feedback. Well, I want you to see me as your friend in the arena equally getting my ass-kicked but inspiring you to keep going because I get it. I’m living it too.

And that the perspectives I share on the show are real life, in the arena types of perspectives, like the one I’m going to share with you today.

But before I do, I want to share an exciting opportunity with you. On Sunday, February 6th I’m hosting another private training showing thought leaders, changemakers, coaches, and consultants how to create killer messaging in their business that not only sounds like them but sets them apart as a leading authority in their industry.

This training is money…and if there is anything a business owner should invest in, it’s their ability to articulate what they do in a unique and compelling way.

If you’re in business, you’re in the business of words! Words are what connect us and without connection, you’ll have a hard time selling let alone creating the change you want to see happen in the world.

So, if that sounds like something you’re wanting to learn, head on over to the link in the show notes and apply now, or visit creativelyowned.com/joinuslive

Now let’s dive into the good stuff for today. We have a special guest on the show. Melissa Houston. Melissa Houston is the founder of The Fractional CFO Agency, a columnist at Forbes.com, and the host of The Business Society podcast. A licensed Chartered Professional Accountant (CPA), she’s a Financial Strategist for CEOs and she helps successful business owners increase their profit margins without having to increase revenue so that they keep more money in their pocket while increasing their personal wealth.

So without further adieu let’s welcome Melisssa to the show.


00:16 Kathryn

Hey, hey, I am super stoked to have Melissa on the show today to chat about money, finances for entrepreneurs. So I'm just gonna turn it right over to you, Melissa so that you can let our listeners know who you are, what you do and who you serve.

00:29 Melisssa

Absolutely, thank you so much for having me here today, Katherine, I'm really excited to be here. And I love talking about all things money, money management, especially when it comes to for business owners, right? Because it's so important. So a little bit of background for me, I am a Chartered Professional Accountant. And I have been certified for over 20 years. I worked in corporate, I worked in government, I worked in public accounting, I've worked in all sorts of places, all types of industries, I've got a ton of experience. And what I was really missing in my career was having that pupil contact, right, like what I really enjoy in life is helping people. And so I combined my my expert knowledge and love of numbers with my love of helping people. And I combine this those two skills in now I coach, business owners, showing them how to manage their money at a very high level, but showing them how to manage the money, they don't need to get caught up in the weeds. And I also do done for you service called fractional CFO work.

01:38 Kathryn

Amazing, amazing. So do you want to share a little bit about what the fractional CFO work is all about, or what it entails? Yeah, so

01:46 Melisssa

Basically, it is a done for you service, very white glove very much, you know, you're the senior person in the accounting space of the business and you're overseeing what you know, if you have an accounting team, if you've got bookkeepers, whatever, or if you don't, and you need a bookkeeper, we offer that as well. And so we're ensuring that your accounting is running, you know, up to snuff, so to speak, you know, following regulations, following guidelines, sitting with the business owner on a monthly basis to report the financials of the business, helping the business owner understand what's going on in their business, so that they make smart, profitable business decisions every, you know, on a daily basis, because they're the decision makers for their business. And we also do financial forecasting, so a year ahead of time. So having those growth plans in place, having those goals in place to help business owners achieve what they really want to achieve, it's so important to have that laid out and be able to monitor your progress against those goals each and every month. So we're very much you know, a done for you service for businesses who are ready for that extra help that senior level guidance, but they're not ready to bring somebody on full time. So fractional means on a part time basis.

03:05 Kathryn

Right? Right. So do you when would you recommend somebody? Have somebody in place doing this, like at what level or stage of business would you recommend bringing in a CFO or fractional CEO? CFO? Yeah.

03:21 Melisssa

Yeah, so I mean, this, you know, unfortunately, there's not like, you know, one stage of revenue or one stage of how many employees that you have, it's a combination of what's going on in your business. So if you are in need of financial guidance, if you're going out to raise capital for your business, that's a really good time to bring in a fractional CFO, if you are, you know, making multiple six figure revenue in your business and you really want to grow. Having that that growth plan in place is super helpful. And if you're a product based business, you may, you know, require those services when you're you know, in the lower six figures because product based businesses have so many things going on, right and sometimes you need that extra special guidance and advice but what I do do for business owners is if you're not at that spot where you need a fractional CFO, that's where the one on one coaching comes in, right? So I help them create the plans, you know, help them with monitoring their finances every month, you know, so it's very much either I can help you through one on one coaching or I can help you through the done for you service.

04:30 Kathryn

Brilliant, brilliant. So what can you share with our listeners again, what the difference is between profit and revenue? And which one is actually like what are we looking at what is

04:40 Melisssa

Oh yes, that's so important, right? Because you know, so often we hear like, oh, I you know, done this seven figure launch or, you know, my business is a seven figure business and revenue. Yes, if you're making that kind of revenue, that's very important, and it's it is impressive, but if you don't have profit to go along with that revenue, then It means nothing, right? So it's really important to focus on your profit margins and your profit levels, because that's the money that you get to keep at the end of the day, right? So if you own your business 100%, then that profit for you after taxes is going to be what you get to keep in your pocket. 

05:19 Kathryn

Yeah, totally. And so, and we've all seen those messages, like you said, where it's like, you know, seven figure launch or, you know, a million dollars in sales and all those sorts of things. But what's the actual profit at the end of the day, and depending on this the business model, right, there's going to be more costs online business, you have less overhead, but as a brick and mortar, location dependent, right, you have a lot more overhead rent, all those sorts of things. What would you say is like a good profit margin to aim for in a business?

05:47 Melisssa

 I get this question all the time? And it's a great question. Yeah. But the thing is, it's going to depend on your industry, right? So let's start from like, the lower end, where restaurant industries tend to be about, you know, three to 8% profit margin was just, you know, fairly low but common in the restaurant industry. And then, you know, you've got professional service based businesses, like, you know, coaches who are based online, you're looking at 70% profit margins, right? Because like you mentioned, there's very little overhead. So if you're in an industry, that's kind of like, well, I don't fit those categories, like maybe you're a product based business, it is written that the average profit margin that's going to be considered pretty good is 20%.

06:34 Kathryn

Okay, okay. Yeah, so totally depends, I guess, on the industry, and, and where, where you're at? So, um, in terms of like, entrepreneurs, what do you feel like is the biggest mistakes you see with entrepreneurs when it comes to money management?

06:50 Melisssa

I see a lot of mistakes. And I'm not here to judge because I get it like you don't know what you don't know. So I just want to make that clear. Like, I really don't feel that the shame needs to be there. But common mistakes are not having a separate account for your business. So if you've got your personal and your business finances coming out of one bank account, that is definite, no, no, make sure that you open a business bank account, so you can keep those that money separate. And it's just leaving a better audit trail, should you ever be audited, right. And another common mistake I see is business owners who are managing their cash levels through what's going on in their bank account. So they think that if they've got a lot of money coming in their bank account, it's sitting there, they think it's there to spend, right. And that's not the case. And that's not profit either, right? Because profit and your money in your bank account are two different things. So being very careful and cognizant of how you manage your cash is super important that a lot of business owners are not taking into consideration. And another mistake I make. And this is more of an emotional mistake, where people feel like they're in this overwhelm, and they want to avoid what's going on with their numbers, right? They don't want to look as what I say, like look under the hood. Yeah, you know, they don't want to see what's going on in their own business, because they're so afraid to see that those numbers aren't gonna line up and that they're not making any money. And that's probably the worst thing you can do. Because if you are in that position, you want to make sure that you change things around, right, you know, because the longer you wait, the more money you're going to be wasting. So, you know, I always encourage people to look at it first, you know, the hardest step is taking the first look right? And then the rest becomes easier and easier.

08:38 Kathryn

So should they be looking at it monthly, like weekly? Like how often should business owners really be looking under the hood, so to speak?

08:47 Melisssa

Yeah, I definitely recommend at a minimum monthly, right, because you're gonna have your financial reports, your books will be closed, your financial reports can be run on a monthly basis, you can look at them, if you've got bookkeeping, that's very, like they're keeping the system very current. And you know, you're kind of in a real time, you can look at your books more regularly. And I would absolutely encourage that. But if you're not getting the bookkeeping done regularly, then there's no point because your financial reports will not be accurate.

09:19 Kathryn

Yeah. I want to talk a little bit about the cash flow and profit and when should businesses spend money? I guess like when should they When do they know when to spend money if you're seeing this influx or this big number in that bank account that you've made a bunch of sales but you have a lot of money that needs to go to pay vendors or whatever it is like when when is the business when are you when are you supposed to pay yourself or pay for things or that sort of thing? 

09:47 Melisssa

Well to pay yourself I absolutely encouraged that that go in your monthly payments, right? So, um, you know when you create that financial plan, and you include what you need to pay yourself so that you can meet your personal needs, then you have a really good idea of what you need to be bringing in, in the business to the very least breakeven, right? Yeah, so paying yourself needs to be a priority. And if you're following the, you know, monthly check in with your financial reports, you're gonna see, okay, you're gonna see how profitable your month was. And you're also going to have a cash management system in place. So you project six to eight weeks ahead of time of what your financial obligations are. So it's monitoring what you're expecting coming in, versus what is going out and the timing of it, because that's super important. And then you have a better idea of what's leftover for you at the end of the day. But you also have to take into consideration what your financial goals are for your business. Do you want to grow your business, if you want to grow your business, you're probably going to reinvest that profit into your business, and grow it in a safe and you know, conducive way to not put your business at risk financially, because not all growth is created equally, right. So for sure, if you're growing too quickly, that's a drain on your capital resources. And you know, that that can put you in a cash flow situation that you want to avoid.

11:14 Kathryn

Yeah, let's talk about that. Because I know on the last episode, I think it was I was chatting with someone about scaling or a couple episodes ago, and how that's like, one of the things where you know, where we see businesses, either eventually close or shut down, because they scaled too quickly, can we talk about what that looks like, and how to avoid the cash flow issues that we might face if we scale too quickly?

11:39 Melisssa

Absolutely. Because what happens is, when you're growing your business, there's going to be more expenses coming in, right. So if you don't have that cash coming in right away, and you're investing in all the things that you need to start growing your business, then if that growth doesn't happen immediately, and you're not getting that cash coming in as a result of what you've invested. And you know, sort of put yourself at risk, and the margins are too tight, you can't handle it, you've run into you've run out of cash, then that's the problem. And you know, the thing is, cash is the lifeline in the business, you need cash coming in to support the cash that goes out, right, it just continually flows in and out. So that's why the timing of your cash payments are so critical to monitor so that you don't end up in a situation where you have run out of cash, you can't pay anybody and your business closes. It's especially difficult for brick and mortar businesses or product based businesses and such service based businesses. It's not as difficult but it certainly is there. And it's an issue that needs to be monitored.

12:43 Kathryn

Right, right. And the brick and mortar product base, just because there's the vendors that need to be paid for, like inventory, or, yeah, you got the rent payments. 

12:50 Melisssa

Yeah, and especially for product based businesses, when you're growing. It's a huge cash outlay in the beginning, right, because you have to invest all this money in that those extra products that you're creating. So the cash doesn't come in until the product is finished and sold. So it's a lot of outlay at the beginning for cash, that you're not necessarily going to see until the end of the cycle. And then it repeats itself if you're if you're growing right? So you have to be very careful to monitor that cash.

13:22 Kathryn

Totally, totally. And I love how you said like cash is like the, you know, basically the lifeline of your business, it is the thing that you're you're wanting but can be misleading, for sure when you've got a lot of cash in the bank account, and you think you've got all this revenue, but it's not necessarily profit. 

13:41 Melisssa

Well, you have all the revenue, but it's not profit, let's say exactly. It's bills that need to be paid in the future. And you just have to make sure that you've timed it all. And here's an interesting statistic. And I mean, it's kind of a depressing statistic. But 82% of businesses fail due to financial mismanagement, right? So if you are one of those businesses that protect yourself, and you're like, Okay, I'm well aware that this is a risk. So I want to invest the time it takes in into learning these financial skills, then you've just beaten a lot of odds by investing in that education and learning how to manage the finances of your business, right. So if you know how to manage things, you're not going to be one of that 82% that fail, you're going to see the importance of managing your money and being in business for the long term.

14:27 Kathryn

Yeah, and such a I mean, yeah, I mean, it is a scary stat when we think about it, but in the same breath, like as a business owner, when you open your business, whatever business it is, you're usually the expert in the thing you're opening your business for, but the financial piece of it is so critical for the success of your business. And so it's not something that like at, you know, at six figures or multiple six figures or whatever that you start to really pay attention to this is like really getting, building that financial literacy really early on. Do you I feel like people's personal finance is a reflection of their business finances. And is that something that holds people back?

15:07 Melisssa

Absolutely. And the problem I find is that there's really not a lot of talk about business, financial literacy, right? We hear a lot of personal financial literacy, which is great. But we need to get more voices talking about the business. And the problem, too I see a lot in the industry is that when people are like when business owners are like, Why don't have enough money to pay my bills, the first answer that comes to mind that people often say, Well just create a product and sell it. But the thing is that you can't sustain a business just by constantly trying to use cash into your business when you've got a cash shortage. So you really need to understand what's going on in your business. Plug those money leaks, because it's the analogy of you can't fill a leaky bucket. So if you've got a ton of leaks going on in your business, where you're leaking money everywhere, and you're not plugging up those money leaks, making more cash is just going to leak out of your business. So it's a real cycle that business owners find really hard to keep up with. Right? So getting back to your question to there's absolutely a correlation between your personal finances and your business finances. So typically, what I see is people who are very good at their personal finances, they may need a little help with their business finances, but on the whole, they're really, you know, living within their means in the sense of spending less than what they're making in their business and such. And then, you know, people who their personal excuse me, their personal finances may be a bit of a disarray, it's usually the same for their business as well.

16:44 Kathryn

Interesting. Interesting. And that's the thing. Yeah, that's holding them back. Obviously, in business, you talked about the leaky bucket, what are some cash flow leaks that are common ones, I guess, that you see in businesses that could be easily plugged or should be looked at.

17:02 Melisssa

I mean, it totally depends on the industry that you're in, right. But common ones, I see your, like, subscriptions that you don't even use anymore, that you don't need to keep paying for. Or another one it's really common is investing a lot into courses and programs and masterminds and such, I see that a lot. And that's a huge money drain. You know, advertising, that is a huge one, like, especially with Facebook ads right now. And the cost of them have skyrocketed, the results aren't coming in as they used to. And you know, a lot of people's advertising is in trouble. So there's so many ways that you can decrease the costs in your business just by looking at what's going on. And seeing if what you're paying for your costs is giving you a return of some sort, right? So if you're paying into those Facebook ads, and you're not getting the return on them, why are you still paying for them, because you know, hope isn't a good enough reason, right? You know, hoping that it's going to turn around is not going to help you get ahead. Another thing too, I often see is not pricing the way you should. So especially for product based businesses, you know, make sure that your pricing is matching, first of all, what the market will, will handle. But secondly, if you have problems, like if you're if your price is like, you know, like sorry, if your market price is less than what cost for you to make the product, that's a problem, right? So you have to either tighten your costs, or maybe it's not viable to sell that product anymore. Another thing I commonly see too, is product, or just people in general, whether you're whatever offer you're putting out there, if you have more than one offer going on, and you don't know which one is the most profitable. So if you're selling the least profitable offer, then you're going to be making the least amount of money, right? So if you're selling your most profitable, that's really going to give your business boost as well.

19:03 Kathryn

Yeah, and I see that a lot, specifically in the online space for sure where you people have this like product suite of courses or you know, digital products or whatever. And they're putting all of these out there. But then when you actually took take that bird's eye view, it's like, do you even know which one is actually profitable? And or the most profitable? And why are you not doubling down on that one? And like really shine that one? Yeah, yeah. Yeah, we're actually offering more products, like you said, right. With the leaky bucket. It's like, let's just keep feeding the business money, but it's just continuing to bleed out or leak out. 

19:36 Melisssa

Yeah, so yeah, exactly. And quite often people think their best sellers are the most profitable because that's what's moving. And that may not be the case as well.

19:45 Kathryn

Yeah, yeah, totally. Depending on exactly like especially product face, right. If you're paying more for that particular product. Yes, you might be selling a million units of them, but if it costs you if you're not making money off it or making that profit margin And then you could be selling one that's less that Yeah. As make actually making more money. So, so important to keep an eye on and have like you said that that view of like, what are your finances? What's what is everything costing you all of that. And the subscription was another one I think is so important to you, because I was just going through my school subscriptions the other day, right is like, I don't use that I don't use that gone, gone, right. Whereas like, you know, this subscription model, I mean, it's a great model. But I do know that a lot of people create that with the idea that people forget Dave and have it.

20:33 Melisssa

Yeah, it's so true.

20:35 Kathryn

Yeah. So what are some tips like money management tips that you can share with our listeners?

20:42 Melisssa

Yeah. So I mean, when I teach business owners how to manage their money, I'm not teaching them how to do accounting, right? Like, you know, chances are, you're gonna have a bookkeeper to help you out. And you don't need to get caught in the weeds of it. So have a really good look at the high level stuff. So one of the things I really teach, first and foremost, is checking in on what's going on with your money mindset. Because if you have some money, mindset issues that are holding you back, then that's going to hold back your business as well, right. So whether if you have, you know, the fear of looking at your numbers that's gonna hold you back, or if you have fear of selling, that's going to limit the revenue that you're, that's coming in. And then another thing is get really familiar with your financial reports. Learn what your income statement is telling you learn what your balance sheet means, and create that financial plan for your business. I think that is so important. Because I often say that's a goal without a plan is just a wish. So if you don't put that financial plan down, you'll never have the steps you need to take to achieve your financial goals, right. So financial plan gives you it's like a roadmap for the year, right? It gives you direction and goals and a sense of purpose. And then monitor your progress against those goals. Make sure that you're achieving your goals and look at it every single month. And if you didn't achieve them, you know, okay, what can I do differently? And if you did achieve them, then that's great. What are you doing well, so it's really good to look at both sides of the coin, right? And then have that cash management in place, it's so important to make sure that you are not going to run out of cash in your business.

22:23 Kathryn

Yeah. And so I mean, great tips there for people. And it's interesting, because business owners work so hard for their money. So hard, we work so fast for money, and yet, and we spend like so much time setting goals per se for like what to sell and, you know, I want to make a you know, 20k or 50k months or whatever our goals are, we want to reach that multiple six figure seven figure business. And we look at what we need to do to sell right, what often do we need to put out? What things do we need to put out? But How much easier would it be to get to those levels, if we also spent the same amount of time looking at the finances of our business?

23:04 Melisssa

Exactly. Because when you look you have a map, you understand how many units of whatever you need to sell in order to meet your expenses just for that month, right. And then knowing that anything above, you know, can be put back into the business, or, you know, help you out during leaner months. Right? So it's really a process that needs to be planned out.

23:25 Kathryn

Yeah. Is there anything else you would love to share with our listeners that that we might not have covered today? Or that we would have missed something that they should know? Or?,

23:36 Melisssa

Yeah, I think I would just really try to drive home, the fact that your numbers are so important. They're telling you a story numbers don't lie, they are telling you a story and take the emotion out of it. And just look at it for feedback, right? Because as business owners, we are always going to be constantly growing and evolving our business and building it and such. So when you take the emotion out of looking at those numbers, it helps you make smart financial decisions. Everything in business affects your bottom line. So make sure that you're informed so you understand how your decisions are affecting the profitability of your business.

24:13 Kathryn

Totally. And it's so interesting, because, you know, I even say this it to my clients, when I talk about marketing data and metrics, right, it's like, take let's take the emotion out of it, because we put so much work into marketing our business. And if we don't get the results we wanted or expected, right, there's data there to tell us why that's happening. But oftentimes, we get have that emotional connection. Yeah, and we make decisions from an emotional state of it's, you know, oh man, we need to make more money. So I'm going to create another product and just keep feeding it that way. Instead of looking at how to improve it or how to fix it or plug the leaks or whatever.

24:45 Melisssa

 Yeah, like don't blow up the burn. Just look at it and say, Okay, let's zero in on what's going well and what we can improve.

24:55 Kathryn

Awesome, awesome. Well, it's been Yeah, such a pleasure chatting with you and I know our listeners. are going to love this topic because I do think like you said, it is something that a lot of people we don't talk about enough, we talk about how to market a business, how to create products, how to, you know, start the business, so to speak, but the financial litter see piece of it is often the piece that's, you know, not really talked about, or people don't want to look at it, right? They're just like, oh, I don't want to look at this topic. It's not the fun topic to look at. Not the fun topic. 

25:23 Melisssa

People are like, I'd rather not. But you know, when you think about it, that, you know, this is your money making opportunity, right? And people love money. So when you break it down to say, Okay, this is the money I get to take home, it becomes a little bit more fun.

25:40 Kathryn

Totally, totally. And again, to write we work so hard as entrepreneurs or business owners, you know, we've created this idea, this business, and we've brought it to life. And it's typically our passion, right in what we're doing. And so why not make it easier on ourselves to really get a good look at the numbers so that maybe we can work less, you know what I mean? There's actually I don't need to sell 10 products. There's one there that's like a standout product, and I can just double down on that and get rid of the rest, you know, exactly.

26:10 Melisssa

26:13 Kathryn

I love the way you think. It's been a pleasure having you on and like I said, I know our listeners are going to love this topic, and a topic that needs to be talked about more, where can they find you if they want to connect with you?

26:24 Melisssa

Absolutely. So my fractional CFO website is very original, thefractionalCFOagency.com and then my personal website is MelissaHoustonCPA.com.

26:39 Kathryn

Awesome. Perfect. Yes, we will link those up in the show notes for everybody. Again, it's been a pleasure chatting with you and having you on.

26:47 Melisssa

Thank you so much for having me. This has been such a fun talk. Awesome.


Now on Episode #35 – We’re continuing on the money train next week too. But, not the paper kind of money we are used to. We’re talking blockchain and cryptocurrencies. And this episode is even more special because our special guest is my younger brother, Matthew. He’s been in the financial industry for over 10 years and has since fallen in love with blockchain technology and cryptocurrencies. He’s the owner of Token Finance and currently getting certified at MIT.

Be sure to subscribe to the show!