Episode 20

E20: Making Profitable Decisions with Melissa Houston

Money talks, but it sure can sound like a foreign language to some of us! Melissa Houston, CPA, owner of She Means Profit, joins me in this episode to demystify a few financial realities about running an expertise-based service business. She has 20 years of experience diving into the numbers with her clients and putting them in control of their 1, 5, 10-year plans to make their business scalable and saleable. In this episode, you will learn:

  • The importance of having a financial plan for your business – and just what the heck that is.
  • Why corporate refugees need to stop thinking in terms of “income” and start considering revenue and profit.
  • Believe it or not, there’s a more important way to increase profit than making more money.
  • What buyers look for in an attractive business (hint, it’s margins).
  • Bonus: Melissa tells us the surprising way she became a Forbes columnist.

With her focus on women business owners, Melissa and I shared some heartfelt perspectives about how women do things differently, and why that can be a benefit and a drain. If you want to assess your own business assets, contact me so we can take a look.

Melissa Houston is a Chartered Professional Accountant (CPA), a Financial Strategist for CEOs, a columnist at Forbes.com, and the host of She Means Profit podcast. Melissa helps successful business owners increase their profit margins so that they keep more money in their pocket while increasing their personal wealth. Melissa’s passion is helping business owners go from 6-figure to 7-figure businesses and achieving their personal financial dreams.


Get Melissa’s Five Step Roadmap to Biz Finance Freedom here:  https://melissahoustoncpa.lpages.co/5-step-biz-finance-roadmap/


Connect with Melissa:

http://shemeansprofit.com

https://www.linkedin.com/in/melissahoustoncpa/

https://www.instagram.com/melissahoustoncpa/

Connect with Erin and find the resources mentioned in this episode at hourlytoexit.com/podcast.

Erin's LinkedIn Page: https://www.linkedin.com/in/erinaustin/

Think Beyond IP YouTube Page: https://www.youtube.com/channel/UCVztXnDYnZ83oIb-EGX9IGA/videos

Music credit: Yes She Can by Tiny Music

A Podcast Launch Bestie production

Transcript
Erin Austin:

Hello everyone.

Erin Austin:

Welcome to the Hourly Exit podcast.

Erin Austin:

I am so excited to have Melissa Houston with me here today.

Erin Austin:

Thank you for joining me, Melissa.

Melissa Houston:

Hi, Erin.

Melissa Houston:

Thank you so much for having me.

Erin Austin:

Well, Melissa and I have known each other for a while.

Erin Austin:

I've had the pleasure of being on her podcast as well, so I'm super excited

Erin Austin:

to have her here to talk to you about all things financial health, but first

Erin Austin:

I'm gonna let Melissa, I'm gonna let you introduce yourself to the audience.

Melissa Houston:

Oh, great.

Melissa Houston:

Okay, so my name is Melissa Houston.

Melissa Houston:

I am a cpa, which means I'm a certified professional accountant.

Melissa Houston:

I have been working in this field for over 20 years, and essentially

Melissa Houston:

I help business owners maximize the profit in their business so that they

Melissa Houston:

can keep more money for themselves and increase their net worth.

Melissa Houston:

So I try to take the fear out of managing the money in your business and really

Melissa Houston:

help you to optimize that profit.

Erin Austin:

Yeah, so important and I wanna mention, Melissa did not mention

Erin Austin:

that she's a columnist with Forbes,

Melissa Houston:

Oh yeah, I'm a little humble

Erin Austin:

Yeah.

Erin Austin:

You know, I had to go there cause very impressive.

Erin Austin:

So, you know, Forbes is one of my favorite sources, uh, to find information about

Erin Austin:

Mackenzie Scott, who's, you know, my, you know, spirit idol and, uh, and the

Erin Austin:

love, the charitable giving that she's

Melissa Houston:

Yeah, she's doing great.

Erin Austin:

Yeah.

Erin Austin:

Just so amazing.

Erin Austin:

But I know audience would love to hear about how you're able to land that gig.

Melissa Houston:

Yeah, well, you know, ironically enough, people think that

Melissa Houston:

it's who you know, and, you know, it really wasn't that case for me.

Melissa Houston:

I cold pitched them and I got a call.

Melissa Houston:

Um, I mean, it really was as simple as that.

Melissa Houston:

And I wish there was like this big secret that I could offer people, but you know,

Melissa Houston:

it's, it's really about being the expert in your field and putting it out there.

Erin Austin:

Yeah, you gotta get out there and, uh, yeah, we, we are all

Erin Austin:

experts and, uh, and there's information we have that would be very valuable to

Erin Austin:

other people, and we need to share it.

Melissa Houston:

Exactly.

Erin Austin:

That's fantastic.

Erin Austin:

So you describe yourself as a business finance coach.

Erin Austin:

Tell me what that means and how you help people.

Melissa Houston:

Yeah, so a business finance coach is kind of like the

Melissa Houston:

intermediary person between, your tax accountant and if you're a small to

Melissa Houston:

medium size business who's not quite ready for a CFO in your business.

Melissa Houston:

Business finance coach is me, and what I do is I help create

Melissa Houston:

profitability in your business.

Melissa Houston:

So typically clients come to me with the frustration of not really

Melissa Houston:

understanding their numbers in their business and knowing that they wanna

Melissa Houston:

create wealth but not sure how to do it.

Melissa Houston:

So what we do is essentially we figure out where they're at financially in their

Melissa Houston:

business and talk about their financial goals, where they wanna be 12 months from.

Melissa Houston:

Five years from now, 10 years from now, and we do a financial plan that's

Melissa Houston:

according to what their goals are.

Melissa Houston:

And what essentially that financial plan is, is it maps out each and every month

Melissa Houston:

what your goals are and these are the goals that you need to meet each and

Melissa Houston:

every month or exceed, and 12 months later, you should be achieving your goals.

Melissa Houston:

But it's not like a a, you know, start and stop thing.

Melissa Houston:

You should always have this financial plan in place for your business.

Melissa Houston:

And then when you have that financial plan, you also monitor your results

Melissa Houston:

against that plan each and every month.

Melissa Houston:

So you understand if you hit your profit targets for the month.

Melissa Houston:

Because often what happens is business owners,

Melissa Houston:

they may have an idea where they want to go, they may not have made a plan.

Melissa Houston:

So I always say a goal without a plan is just a wish.

Melissa Houston:

And if you don't get that goal down on paper or in Excel or you

Melissa Houston:

know, however the term is these days, It's likely not gonna happen.

Melissa Houston:

You need to make yourself accountable to your goals, and while you're doing

Melissa Houston:

that, when you map out these goals, you are also finding ways to increase

Melissa Houston:

that profitability in your business,

Melissa Houston:

you have all the moving parts mapped out, and you just ensure that each and

Melissa Houston:

every month you're meeting your targets.

Melissa Houston:

So that you are optimizing profit in your business.

Melissa Houston:

Now, I also teach how to manage cash flow and, you know, internal controls

Melissa Houston:

and all sorts of other things that small businesses are, are up against that,

Melissa Houston:

we don't know where to go to get this help, but it's so essential.

Melissa Houston:

And ultimately the goal is increase the profit so that

Melissa Houston:

it increases your net worth.

Melissa Houston:

Because as small business owners, chances are you own

Melissa Houston:

your business a hundred percent.

Melissa Houston:

So that is a financial asset.

Erin Austin:

Right.

Erin Austin:

So two things.

Erin Austin:

One is, so you are a cpa, but in this role, you're not acting as

Erin Austin:

your cpa, they're using a separate tax accountant or, or is that?

Melissa Houston:

Exactly, Yes.

Melissa Houston:

So because I am Canadian and in order to practice in Canada and the

Melissa Houston:

US, I would need to be licensed in each and every province and state.

Melissa Houston:

to do taxes and I just don't have that bandwidth.

Erin Austin:

Yeah, and there are other people who can do it, so...

Melissa Houston:

Yeah, And I don't love taxes enough to specialize in it.

Melissa Houston:

So what I do is I help my clients by working with their cpa, their

Melissa Houston:

tax accountant, who is going to give those tax saving strategies to

Melissa Houston:

help optimize the profit as well.

Melissa Houston:

So they have their tax accountant in the state that they're in, or the province

Melissa Houston:

if they're Canadian and we work together.

Melissa Houston:

And ensure that they are taking advantage of the privileges that

Melissa Houston:

you have as a business owner when it comes to the income tax act.

Erin Austin:

Okay.

Erin Austin:

Gotcha.

Erin Austin:

And then the other is you use the term financial plan.

Erin Austin:

You didn't use the term financial planner, which I associate with like

Erin Austin:

the person who helps you get your retirement and that kind of stuff.

Erin Austin:

And so couple of the difference between the financial plan versus

Erin Austin:

what a financial planner does.

Melissa Houston:

Yeah, so that's a really good question and I

Melissa Houston:

love how you picked up on that.

Melissa Houston:

So, financial plan is a combination of a budget and an operating forecast.

Melissa Houston:

So these are accounting terminologies, right?

Melissa Houston:

And I tend to stay away from them because it can sound a little scary

Melissa Houston:

to some people and they're like, I don't wanna get involved in that.

Melissa Houston:

But what it is, is it's looking at where you are at in your business

Melissa Houston:

and planning out where you wanna take your business to, right?

Melissa Houston:

So you're looking at the financial plan in the sense of how much money

Melissa Houston:

you wanna earn, how much profitability, if you can increase your profit

Melissa Houston:

margins, all sorts of stuff like that.

Melissa Houston:

And a financial planner is the designated person who helps you invest your money.

Melissa Houston:

So if you were at the stage in your business where you've hit your growth

Melissa Houston:

target, you're at your sweet spot and you've got all this extra money that

Melissa Houston:

you need to invest, this is where you would consult not only a CPA, but a

Melissa Houston:

financial planner to start investing, and the CPA's there to help you with

Melissa Houston:

the tax saving strategies for personal investing as well, and business.

Melissa Houston:

And your financial planner,

Melissa Houston:

probably if you pick a good one, we'll probably know all the tax rules and such,

Melissa Houston:

and basically, you work together as a team to ensure that you are protecting

Melissa Houston:

your financial assets and growing them and getting your money working for you.

Erin Austin:

Got it.

Erin Austin:

Okay.

Erin Austin:

Very good.

Erin Austin:

So you mentioned that, uh, small business owners, they, they need this help,

Erin Austin:

but they don't know where to find it.

Erin Austin:

I assume when you kind of entered this, well, first of

Erin Austin:

all, are you a corporate refugee

Melissa Houston:

Yes, absolutely

Erin Austin:

Okay.

Melissa Houston:

And that's why I went into business for myself,

Melissa Houston:

because I knew this was lacking.

Melissa Houston:

I've worked in corporate, I've worked in public accounting firms, and whether I'm

Melissa Houston:

working with business owners or project managers, I see the same thing where

Melissa Houston:

people don't understand their business numbers, and when you understand your

Melissa Houston:

business numbers, that helps make you the best business owner that you can

Melissa Houston:

be, because what you're doing is you're making profitable business decisions

Melissa Houston:

every single day instead of relying on your accountant who you probably

Melissa Houston:

see once a year, and really isn't all that invested in your business.

Melissa Houston:

I always say nobody's gonna care about your business as much as you do, so you

Melissa Houston:

need to get familiar with your numbers.

Erin Austin:

Yeah.

Erin Austin:

Well, well let's, let's jump into that then.

Erin Austin:

So, in a lot of service providers, you know, we think in terms of

Erin Austin:

income, which is, you know, many of us are corporate refugees.

Erin Austin:

We think in terms of income, we have that kind of post corporate mentality.

Erin Austin:

And if we're going to think about ourselves as CEOs of our

Erin Austin:

business business owners, we need to kind of think beyond income.

Erin Austin:

So there are a couple of terms that are related, but different

Erin Austin:

that I think people sometimes use interchangeably cuz they don't

Erin Austin:

understand the different nuances of them.

Erin Austin:

But those are revenue, profit, and income.

Erin Austin:

And can you just kind of tell us the differences and

Melissa Houston:

I love this question.

Melissa Houston:

This is such an important question because often what we hear as business

Melissa Houston:

owners is if we're having cash flow problems, what do people usually tell us?

Melissa Houston:

Go make more money, right?

Melissa Houston:

So that's the revenue.

Melissa Houston:

And the thing is, revenue is important.

Melissa Houston:

You absolutely need revenue in your business, but if you're not generating

Melissa Houston:

profit, which is what you get to keep as a business owner at the end of the day,

Melissa Houston:

then it's a red flag for your business.

Melissa Houston:

So revenue, yes, it's important, but you don't need to generate more

Melissa Houston:

revenue if you've got money leaks.

Melissa Houston:

You have to go in and fix your money leaks.

Melissa Houston:

You have to go in, know your numbers, know where you can increase profit,

Melissa Houston:

check your pricing structure.

Melissa Houston:

There's all sorts of things that you need to do before you just go

Melissa Houston:

out and make more money, right?

Melissa Houston:

Because if you're making more money, it's just like being on a hamster wheel.

Melissa Houston:

The problem is still gonna be there.

Melissa Houston:

You're still gonna be cash poor at the end of the month and

Melissa Houston:

wondering where all your money went.

Melissa Houston:

So profit is revenue, less expenses.

Melissa Houston:

So all your expenses would be your, all your costs, all your overhead,

Melissa Houston:

and that includes paying yourself.

Melissa Houston:

So, so many times I see business owners who are not paying

Melissa Houston:

themself a regular salary.

Melissa Houston:

So that is definitely one thing we do in the financial plan where we include that.

Melissa Houston:

So you ensure that you're paying yourself what you need to pay

Melissa Houston:

yourself in order to meet your personal financial responsibilities.

Melissa Houston:

So then the essentially income, net income and profit, that's the same

Melissa Houston:

line in an income statement, right?

Melissa Houston:

So whether you're, you can use them interchangeably and profit income is

Melissa Houston:

what you get to keep as a business owner.

Melissa Houston:

So you can either reinvest into your business as you're growing your

Melissa Houston:

business, or you can invest in another ways to get your money working for you.

Erin Austin:

Okay.

Erin Austin:

Got it.

Erin Austin:

And so when we think about the service based business, you know, I.

Erin Austin:

Probably the lay person thinks of profit in product based business is, you know,

Erin Austin:

the revenue minus cost of good sold.

Erin Austin:

And we're trying to figure out what that expense is or cost of good sold

Erin Austin:

is in the expertise based business.

Erin Austin:

Do you start with what do you need to live or do you start with what the

Erin Austin:

market rate is for what you do like, Like what is the right way to think

Erin Austin:

about like what your cost of good sold is in an expertise based business?

Melissa Houston:

Yeah, so your cost of good sold is actually a little different

Melissa Houston:

from your overhead expenses, right?

Melissa Houston:

So for product based businesses, the cost of good sold is going to be all the direct

Melissa Houston:

costs going into creating that product.

Melissa Houston:

And then the overhead costs are your salaries and um, you know,

Melissa Houston:

advertising and dos and subscriptions and all that stuff, right?

Melissa Houston:

So when I first meet with clients, one of the steps that we take.

Melissa Houston:

Establishing what they need to earn at a minimum to pay their personal expenses.

Melissa Houston:

So we factor that into the financial plan.

Melissa Houston:

And then we work backwards in a way, cuz like what we do is we calculate all

Melissa Houston:

the monthly expenses that are coming in and then examine their pricing

Melissa Houston:

strategy, look at how their pricing, their products and services, seeing if

Melissa Houston:

we need to make any adjustments there.

Melissa Houston:

See if we need to reduce costs or increase rates or increase sales levels.

Melissa Houston:

And then we start planning out how much revenue they need to bring in in order

Melissa Houston:

to break even, and then in order to get to the net profit margins of their

Melissa Houston:

business that they want to achieve.

Melissa Houston:

So usually we base the net profit margins on what is happening in their industry.

Melissa Houston:

So for service based businesses, typically, 50% is a standard net profit

Melissa Houston:

margin, where in the restaurant bakery business, it would be eight to 10%.

Melissa Houston:

So it really varies from industry to industry.

Erin Austin:

Okay.

Erin Austin:

Gotcha.

Erin Austin:

And so that makes you, I mean, you're talking to them about their pricing, about

Erin Austin:

their business model, about everything,

Melissa Houston:

Exactly, and it can get very overwhelming.

Melissa Houston:

So that's why it's, it's very hands on.

Melissa Houston:

We're there to do it together and we create that plan.

Melissa Houston:

And, um, what happens after that is you monitor the plan.

Melissa Houston:

So then usually they check in with me every month to look at it together and

Melissa Houston:

compare what they actually did in that month versus what they had planned.

Melissa Houston:

And then we examine the variances and see if there's any problems that are

Melissa Houston:

surfacing that need to be fixed in order to, you know, plug money leaks.

Erin Austin:

Do you work mostly with service based businesses or

Erin Austin:

do you have different industries?

Melissa Houston:

I have a gamut of different industries.

Melissa Houston:

I love working with product based businesses, I love

Melissa Houston:

working with service based.

Melissa Houston:

Product based tends to be a little bit more detailed and complicated,

Melissa Houston:

so I love challenges, right?

Erin Austin:

right.

Erin Austin:

Right.

Erin Austin:

And all different.

Erin Austin:

That's great.

Erin Austin:

Now, the name of your business is,

Erin Austin:

, Melissa Houston: she means profit

Erin Austin:

I work with men and women.

Erin Austin:

I love working with women because women tend to have a lot of money mindset

Erin Austin:

issues where we have been told that we don't need to be wealthy or you know,

Erin Austin:

we just, you know, need as much as we need to get by, or that making money is

Erin Austin:

greedy and there's all sorts of baggage that we can carry about becoming wealthy.

Erin Austin:

And I really try to change that narrative in their head and just show women how.

Erin Austin:

We have the space, we have the capability, we have the brains, we have the ambition.

Erin Austin:

We have everything we need.

Erin Austin:

So it's okay to claim that wealth.

Erin Austin:

Yeah.

Erin Austin:

Yeah.

Erin Austin:

I mean, and at the end of the day, in the United States of America,

Erin Austin:

wealth means impact, right?

Erin Austin:

And so if we wanna have a voice, if we wanna make a difference, like it's

Erin Austin:

fairly difficult to do that wealth free.

Erin Austin:

And so the more wealth we have in the hands of women, You know, the more that

Erin Austin:

they are generous, like as we know from McKenzie versus, uh, her ex, uh, and,

Erin Austin:

uh, and that you can help your community, help your childrens sharing that wealth.

Erin Austin:

I mean, it's to look at it as the ways you can use it for good instead of

Melissa Houston:

There's so many great ways you can use wealth, right?

Melissa Houston:

And I love what you said, like, you know, Yes.

Melissa Houston:

Women definitely donate.

Melissa Houston:

We build charities, we build not for profits.

Melissa Houston:

Um, we.

Melissa Houston:

Set our kids up for education and set them up for a good future.

Melissa Houston:

There's generational wealth that can be passed down from generation to generation.

Melissa Houston:

There's so much we can be doing with wealth and there's so many good things.

Melissa Houston:

And you know, a, a lot of women fear that money will change them.

Erin Austin:

Dig into that for me.

Erin Austin:

Where does that come from?

Melissa Houston:

I'm not sure where it comes from.

Melissa Houston:

Maybe it's a lot of the childhood stories we're told and you know, we

Melissa Houston:

just play them back in our heads.

Melissa Houston:

But the thing is, I always say to them, Are you a good person now?

Melissa Houston:

And usually the answer is yes.

Melissa Houston:

So with money that can just.

Melissa Houston:

Have you be a not a better person, but like a bigger, more impactful person.

Melissa Houston:

On a bigger scale, you're still gonna be that good person if you're

Melissa Houston:

a jerk, it's just going to amplify the fact that you're a jerk if you

Melissa Houston:

got a whole bunch of money, right?

Melissa Houston:

So money doesn't change who we are, it just changes the

Melissa Houston:

opportunities that were given.

Erin Austin:

Right.

Erin Austin:

Yeah.

Erin Austin:

I wonder if it also, I mean if a woman is partnered with a man, if it

Erin Austin:

seems too competitive or that it's just, it will change the dynamic

Erin Austin:

within that relationship as well.

Melissa Houston:

Yeah, and that's a really good question because a

Melissa Houston:

lot of women fear that they fear making more than their partner.

Melissa Houston:

They fear making more than their parents.

Melissa Houston:

There's a lot of fear that comes with money.

Melissa Houston:

Money is a very emotional topic, right?

Melissa Houston:

But the reality is there's more and more women who are

Melissa Houston:

out earning their male spouses

Melissa Houston:

now, and it's just becoming a little bit more normalized and you

Melissa Houston:

know, hopefully 5, 10, 15 years down the road, it could be the.

Melissa Houston:

Or, you know, I, I don't know if equality will ever, a hundred

Melissa Houston:

percent be achieved, right?

Melissa Houston:

Cause there's always gonna be that balance, that scale.

Melissa Houston:

But I mean the equality in the sense that women can absolutely out

Melissa Houston:

earn their men and totally be okay.

Melissa Houston:

I mean, I'm in a relationship like that and I know my husband

Melissa Houston:

doesn't feel threatened by

Melissa Houston:

it.

Melissa Houston:

. Erin Austin: Right.

Melissa Houston:

He feels grateful,

Erin Austin:

Exactly.

Erin Austin:

Like what?

Erin Austin:

Where's the downside

Melissa Houston:

Yeah, and a lot of women have the, the dream

Melissa Houston:

of retiring their spouses too.

Melissa Houston:

You know, if their spouse is not, an entrepreneur themselves and

Melissa Houston:

they're in their jobs and they're miserable, you know, they want

Melissa Houston:

to help them get out of that.

Melissa Houston:

And there's absolutely nothing wrong with that.

Melissa Houston:

That's a gift.

Erin Austin:

Right, Exactly.

Erin Austin:

Yeah.

Erin Austin:

And for some of us, and certainly I started mine when I, uh, went out on

Erin Austin:

my own, it was definitely lifestyle oriented and I was not remotely thinking

Erin Austin:

about building an asset or it was very income oriented, kind of based on,

Erin Austin:

you know, what was I making when I was in house versus what I'm making now.

Erin Austin:

And my primary motivator was flexibility and making enough

Erin Austin:

to cover what I needed to cover.

Erin Austin:

Like that was a hundred percent of what I was doing.

Erin Austin:

You know, for me, the mindset issues weren't kind of those negative ones.

Erin Austin:

It was more of a understanding what it could be, like instead of

Erin Austin:

just being an income generator.

Erin Austin:

And so in that, until someone kind of tells you that you just

Erin Austin:

stay in that income mindset.

Erin Austin:

Like as I'm talking to women now and we talk about, you know, using our expertise

Erin Austin:

to create assets, it is very surprising to easily 90% of them, they never

Erin Austin:

thought about that as an asset builder.

Erin Austin:

so what are you seeing when you're talking, I mean, your, your podcast,

Erin Austin:

your, your columns, you're writing like, what are women thinking about?

Erin Austin:

Like what were they thinking?

Erin Austin:

Was it all news to them or,

Melissa Houston:

No, I would completely agree with you.

Melissa Houston:

Most of them are not thinking that it's an asset builder, but what I

Melissa Houston:

talk about all the time is how being a business owner is the fastest way

Melissa Houston:

to create wealth for yourself because your business is a financial asset.

Melissa Houston:

You have the, control to a certain extent how much money that you're

Melissa Houston:

bringing in each and every month, and you have control over the profit

Melissa Houston:

and you know, all the wealth building

Melissa Houston:

tools that come with being a business owner.

Melissa Houston:

But also I talk about, and I know obviously you do too,

Melissa Houston:

the exit strategy, right?

Melissa Houston:

You know, building that asset so that you can sell it one day.

Melissa Houston:

So not only just look at it as being an income producer, but being an asset

Melissa Houston:

that you can sell and you know, give yourself a nice little retirement nest

Melissa Houston:

egg or go on to build another business or whatever it is that you desire.

Erin Austin:

Right.

Erin Austin:

Absolutely.

Erin Austin:

Absolutely.

Erin Austin:

So when someone comes to you, like, how do they know they need you?

Erin Austin:

Like, what are they experiencing that they go, I need to go talk to Melissa?

Melissa Houston:

Typically what I see is there's a lot of fear and anxiety

Melissa Houston:

when, when people come to me because they feel so overwhelmed about their

Melissa Houston:

business finances and they, they feel like, this is generalization, but

Melissa Houston:

they feel like they've been failing.

Melissa Houston:

Right.

Melissa Houston:

And what I often say to, to people is that you started your business

Melissa Houston:

with the passion that you had to help people, you know?

Melissa Houston:

So whether you're a lawyer or you're a dentist, or you're selling jewelry,

Melissa Houston:

whatever the case may be, that is what you were passionate about and

Melissa Houston:

that's how you wanted to help people.

Melissa Houston:

Chances are nobody really taught you how to manage the

Melissa Houston:

money in your business, right?

Melissa Houston:

And even if you did take an accounting or business class,

Melissa Houston:

they didn't teach you that.

Melissa Houston:

You know, like nobody really teaches you how to do that.

Melissa Houston:

So accountants know how to do it because that's what we've done since day one.

Melissa Houston:

I mean, even as an accounting student, I was not taught how to manage money.

Melissa Houston:

I was taught debits and credits and you know, financial reports

Melissa Houston:

and blah, blah, blah, this stuff.

Melissa Houston:

But nobody taught us how to put it together.

Melissa Houston:

We just figured it out, right.

Melissa Houston:

So having that opportunity to have somebody to show you exactly what you

Melissa Houston:

need to know really alleviates the stress.

Erin Austin:

Right.

Erin Austin:

You know, I just turned the page on my questions here and I realized I missed

Erin Austin:

one that I wanted to talk to you about in terms of calculating profit, which.

Erin Austin:

you know, not just calculating it on the entire business, but like

Erin Austin:

assuming it's a service based business and we have different services.

Erin Austin:

Let's say we do some one on one stuff, maybe we do some group coaching,

Erin Austin:

maybe we have some sort of product like measuring profit, the importance

Erin Austin:

of measuring profit for each of your offerings versus just on the whole company

Melissa Houston:

Such a good question.

Melissa Houston:

I love this question.

Melissa Houston:

Yes.

Melissa Houston:

And this is where we definitely examine that and the, when we're looking at

Melissa Houston:

the pricing strategies, right, because it's really important, especially

Melissa Houston:

for product based businesses, I find a lot of them don't know what the

Melissa Houston:

gross margin is on their products.

Melissa Houston:

So the gross margin is the.

Melissa Houston:

Price that they're charging for their product or services, and then all the

Melissa Houston:

direct costs that go into it, Right?

Melissa Houston:

So what happens is for product based businesses, they think

Melissa Houston:

that their best seller is.

Melissa Houston:

Their highest paying product, right?

Melissa Houston:

But what happens is your best seller may actually be putting you in the hole

Melissa Houston:

if you don't understand your numbers.

Melissa Houston:

So you have to examine all the costs that go into this and make

Melissa Houston:

sure that you're priced accordingly and turn that best seller into

Melissa Houston:

your profit making machine as well.

Melissa Houston:

Right?

Melissa Houston:

So, yeah, that is definitely part of the strategy.

Melissa Houston:

We look at all the products and services that are being offered and price them

Melissa Houston:

accordingly so that you are making that industry standard gross margin.

Erin Austin:

Right.

Erin Austin:

Yeah, no, that, that was a recent revelation for me.

Erin Austin:

Like where, where, you know, as I work with, with my accountant about like

Erin Austin:

tracking the different income streams differently, and I, first, I'm like,

Erin Austin:

What, what difference does it make?

Erin Austin:

But like, Oh no, you have to

Melissa Houston:

Yeah.

Melissa Houston:

When you start seeing what, what makes most money, chances are you're

Melissa Houston:

gonna start focusing on selling that

Melissa Houston:

, Erin Austin: Yes, exactly.

Melissa Houston:

you know?

Erin Austin:

exactly.

Erin Austin:

Yes.

Erin Austin:

okay, so this is the Hourly to Exit podcast.

Erin Austin:

And so here we talk about that journey from that unsustainable hourly model

Erin Austin:

to building a business that hopefully can sell some day and create wealth.

Erin Austin:

And you know, part of that, of course is creating assets to having

Erin Austin:

exclusivity in your business.

Erin Austin:

And so the assets and including IP and.

Erin Austin:

Market positioning as well as having predictability in the business.

Erin Austin:

So you have independence from the founder and that you have SOPs and the like.

Erin Austin:

And so when, when we talk about the context of building a scalable

Erin Austin:

and saleable services business, like where does your role come

Erin Austin:

in and how do you help them

Erin Austin:

get there?

Melissa Houston:

Yeah, so this is a good question as well, because when investors

Melissa Houston:

are looking to buy your business, they're gonna care about how much cash you're

Melissa Houston:

generating in your business, right?

Melissa Houston:

And we want to make sure that you are at the right place

Melissa Houston:

financially to sell your business.

Melissa Houston:

So they will look at it as a good investment.

Melissa Houston:

So making sure that your books are up to date and accounted for correctly.

Melissa Houston:

I mean, so many times I've seen huge messes in the bookkeeping.

Melissa Houston:

So making sure that's all cleaned up before you put your business up to sell.

Melissa Houston:

And ensuring that you're optimizing the profit in your business so that

Melissa Houston:

you can get a bigger price tag for it.

Erin Austin:

Right.

Erin Austin:

Absolutely.

Erin Austin:

You mentioned, one of the things that you do is help people go

Erin Austin:

from six figures to seven figures.

Erin Austin:

Is there a ma is there magic there between six and seven?

Erin Austin:

Like when, When looking at that exit?

Melissa Houston:

I would say if I was looking at it with my investor eyes

Melissa Houston:

on it, it wouldn't matter if it's a six, seven, or eight figure business.

Melissa Houston:

I would be looking at the profit margins.

Melissa Houston:

Right.

Erin Austin:

That's what it was.

Erin Austin:

At Profit Margins.

Erin Austin:

We were talking about the, the 50%.

Erin Austin:

That's what I was,

Melissa Houston:

Yeah.

Melissa Houston:

Yeah.

Melissa Houston:

So making sure that the profit margins are healthy, because if you've got a

Melissa Houston:

really good business, but the investor wants to grow that business, they're

Melissa Houston:

totally able to do that if you've got that solid financial foundation.

Melissa Houston:

Right.

Melissa Houston:

So it would be much more appealing to me to purchase a Business that earns

Melissa Houston:

about 500,000 revenue, but the profit margins are at 50% versus somebody

Melissa Houston:

who's earning, you know, two, 3 million.

Melissa Houston:

But the profit margins are at 20%.

Melissa Houston:

The big difference is that big chunk of money that you're

Melissa Houston:

gonna have at the end, right?

Melissa Houston:

So to grow and scale a business that it's at 50% profit margin is so

Melissa Houston:

much easier than doing it backwards

Melissa Houston:

did that make sense?

Melissa Houston:

That got a little

Melissa Houston:

convoluted there.

Erin Austin:

No, no, it absolutely did.

Erin Austin:

Yeah.

Erin Austin:

And yeah.

Erin Austin:

And that, you know, a buyer is buying know your, your future, not your past.

Erin Austin:

Right.

Erin Austin:

So

Melissa Houston:

Exactly, exactly.

Melissa Houston:

They're gonna look at the financial potential of the business.

Melissa Houston:

They're gonna look at all sorts of other financial ratios, like

Melissa Houston:

customer retention, customer satisfaction, Um, the list goes on.

Melissa Houston:

I can't think of any off the top of my head, but there's, there's a lot

Melissa Houston:

of financial ratios that they're gonna examine when they're looking to purchase

Melissa Houston:

a business.

Erin Austin:

Right, right.

Erin Austin:

Well, that brings us to the fact that this is a very meta podcast.

Erin Austin:

You know, I'm a female founder of an expertise based business that

Erin Austin:

I'm hoping to grow to sell someday, and you are the female founder

Erin Austin:

of an expertise based business.

Erin Austin:

So are you growing your business to perhaps sell some

Melissa Houston:

Absolutely

Erin Austin:

course?

Melissa Houston:

the smart thing to do.

Melissa Houston:

You know, you know, I, I really made a conscious effort with, she needs profit

Melissa Houston:

to separate my name from the business and ensure that the business can go on

Erin Austin:

Right, Right.

Erin Austin:

Do you have a team or how do you use solo?

Erin Austin:

Or how do you set up your,

Melissa Houston:

I have a little, Yeah.

Melissa Houston:

I mean, may, It's my personality defect, right?

Melissa Houston:

I have a little bit of a control freak, so I have a team, but I

Melissa Houston:

don't have anybody on payroll,

Erin Austin:

Yeah.

Melissa Houston:

I contract my

Erin Austin:

Yeah, that's definitely a team.

Erin Austin:

That's absolutely a

Erin Austin:

team.

Erin Austin:

Yeah,

Erin Austin:

Yeah, and I mean that's just, if you're using a team that shows

Erin Austin:

that you have systems in place and that you have, you know, that's

Erin Austin:

not just you with your genius,

Erin Austin:

which is hard to genius,

Melissa Houston:

Exactly.

Melissa Houston:

Yeah.

Melissa Houston:

Yeah.

Melissa Houston:

And you know, some people think like, oh, having somebody on payroll is absolutely,

Melissa Houston:

you know, the only way to have a team.

Melissa Houston:

But that's not the case.

Melissa Houston:

And I prefer to, outsource because, like, say for example, marketing and

Melissa Houston:

social media, if they're on my payroll, that means I'm responsible for ensuring

Melissa Houston:

that their knowledge stays up to date.

Melissa Houston:

I don't know the first thing about that,

Erin Austin:

Mm, right?

Melissa Houston:

burdened with it.

Erin Austin:

Yeah.

Erin Austin:

Yeah.

Erin Austin:

I mean, unless you have, you know, enough, uh, activity.

Erin Austin:

You know, keeping up to date on those things internally makes sense.

Erin Austin:

Like, I mean, the fractional CFO thing, it's kind of the same issue.

Erin Austin:

Like how much of that do you need in house?

Erin Austin:

And people are afraid.

Erin Austin:

They feel like a team means employees and Absolutely does not.

Erin Austin:

I, I agree a hundred percent that team can be your contractors, and that it's a

Erin Austin:

great way to, you know, add leverage to our businesses and, and help us grow cuz.

Melissa Houston:

Yeah.

Erin Austin:

Stay in your zone in Genius.

Erin Austin:

So to wrap up, um, I know you have a book coming out.

Erin Austin:

Please tell us about that.

Melissa Houston:

Oh, thank you.

Melissa Houston:

I'm super excited about this book.

Melissa Houston:

It's called Cash Confident.

Melissa Houston:

It's the Entrepreneur's Guide to Creating a Profitable Business, and

Melissa Houston:

it will be for sale and bookstores.

Melissa Houston:

the job date is May 16th, 2023.

Melissa Houston:

Little bit of ways, but.

Melissa Houston:

Still super excited about it, getting the word out about it so that people are

Melissa Houston:

aware that there's going to be an extra resource to help them create the most

Melissa Houston:

profitable business that they can create.

Erin Austin:

Tell us about the, the timeline of getting like a year from

Erin Austin:

when, you know, you're writing the book.

Erin Austin:

Like is that just the publisher's timeline?

Erin Austin:

Like how does

Melissa Houston:

That's the publisher's timeline.

Melissa Houston:

So it was really important to me to get a traditional book publishing

Melissa Houston:

deal and I, you know, by most standards I got very, very lucky.

Melissa Houston:

So this is actually happening pretty quickly.

Melissa Houston:

So.

Melissa Houston:

let's see.

Melissa Houston:

They purchased the book February 20 of this year.

Melissa Houston:

We're in 2022.

Melissa Houston:

Okay.

Melissa Houston:

Sorry.

Melissa Houston:

The pandemic has messed up my memory.

Melissa Houston:

So February, 2022 and then, Going through the timeline to May 16th, 2023,

Melissa Houston:

there's still a lot of work to be done.

Melissa Houston:

There's edits that we still need to go through and book covers, it's a long

Melissa Houston:

road to getting a, a book published when, when you're doing it through a

Erin Austin:

Mm-hmm.

Erin Austin:

That's very exciting.

Erin Austin:

And did you have a whole, outline or like how much did you have to sell your book?

Melissa Houston:

Oh, I had a book proposal that I had been working on for

Melissa Houston:

about eight months

Melissa Houston:

and got a financial literary agent, and then we decided to change a bit of

Melissa Houston:

it, so then worked on it for another three months, and then she sold it.

Melissa Houston:

So a lot of work went into the book proposal, which is completely

Melissa Houston:

separate from the actual book

Erin Austin:

Right.

Melissa Houston:

So it's quite a long process, but by by standards.

Melissa Houston:

I did it within two years.

Melissa Houston:

I guess it'll be about two and a half years by the time it's published.

Melissa Houston:

So I feel very fortunate about

Erin Austin:

Yeah.

Erin Austin:

that.

Erin Austin:

is fantastic.

Erin Austin:

And so I know you have an offer that you share that you can share with the

Melissa Houston:

Yes.

Melissa Houston:

So for anybody who's interested in learning more about being the most

Melissa Houston:

successful business owner that you can be in creating that profit in your business

Melissa Houston:

and understanding your business numbers, uh, you can download my free guide.

Melissa Houston:

It's the Five Step Roadmap to Biz Finance Freedom.

Melissa Houston:

I'll send you the link.

Melissa Houston:

I'm assuming you'll leave it in the show notes.

Erin Austin:

absolutely.

Melissa Houston:

Perfect.

Melissa Houston:

And um, yeah, you can get the, I think it's like a better seven or

Melissa Houston:

eight page guide and it gives you more information on how to do that.

Erin Austin:

Fantastic.

Erin Austin:

Absolutely.

Erin Austin:

That will be in the show notes and as well as please tell

Erin Austin:

people where they can find you.

Melissa Houston:

Yeah, so my main site is Melissa Houston

Melissa Houston:

cpa.com, and she means profit.com.

Melissa Houston:

And I also have a podcast called She Means Profit.

Melissa Houston:

Tune into it and learn all about how you can create profitability in your business.

Erin Austin:

Fantastic.

Erin Austin:

Well, this has been so wonderful.

Erin Austin:

Thank you so much for sharing your wisdom.

Erin Austin:

I know it was tremendously valuable to the audience, and I

Erin Austin:

look forward to doing again soon.

Melissa Houston:

Thank you so much for having me.

Melissa Houston:

This has been such a fun talk.

Erin Austin:

Good.

Erin Austin:

Thank you.

About the Podcast

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Hourly to Exit

About your host

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Erin Austin

Meet Erin Austin, a Harvard Law alum with over 25 years of copyright and contracts experience. As the go-to advisor for professionals with corporate clients, Erin empowers entrepreneurs to be their own advocates, standing out for her commitment to transforming expertise into empires through the creation, protection and leveraging of intellectual property assets. Explore her blend of legal expertise and entrepreneurial insight on ThinkBeyondIP.com and the "Hourly to Exit" podcast. Off the clock, you'll find Erin in the great outdoors or connecting with business coaches to elevate 6-figure consultants into 7-figure powerhouses.