The Impact Of Top And Bottom Line Growth
The Impact of Both the Top and Bottom Line Growth
It might surprise you how many business owners do not focus much on top line and bottom line growth equally.
If money IN drives the top line and money OUT drives the bottom line, both become pretty important in the life of any business. Quite often the focus does not always remain on both. During times like these it’s important to take a deep look to see what you need to do in order to survive and thrive again.
The top and bottom lines in your income statement are the most important lines for a company. Analysts and investors pay attention to them for signs of any changes quarterly and annually.
Top Line Growth
Since the top line reveals the company revenues or gross sales, it provides a quick view of whether the company is able to grow market share.
The Bottom Line
The bottom line however, is the company’s net profit which tells a bigger story. This line is after all expenses have been deducted from the top line revenues. It also includes interest charges paid, general administrative costs and income taxes.
A few of ways the bottom line can be increased:
- Increase revenue or generate top line growth.
- Increase operational efficiencies by cutting down on costs.
- Analyzing your operations is an important aspect of any cost cutting actions. This is an area that can provide deep financial reserve if the cost is examined in every area that is needed to keep the doors open and lights on.
- Increase tax deductions.
- Many business owners overlook the impact of incorporating all possible deductions allowed by the IRS for their business, to reduce taxable income and your overall tax bill. This can often be equally important to improving operational efficiency in terms of increasing the bottom line. For example, it has been cited that there are far more businesses that qualified for the 20% Qualified Business Income (QBI) deduction than those that claimed it.
If sales are flat for a particular reporting period, there may be expenses that can be deferred in order to keep a positive cash flow. Cost cutting measures to reduce expenses are common in times of sluggish economic activity like we are experiencing in today’s market. It’s important, however, to recognize good cost cutting versus bad cost cutting.
A cost cutting measure thoughts:
- Human capital is vital, so doing everything you can to save them will put you in a better position when cash flow increases.
- Consider examining the unnecessary expenses in the company that are dragging down your cash flow. Areas such as supplies, travel, meals, hardware/software, and paid marketing effort are all areas to consider.
- Where possible, bring as many of the external expenses back in-house.
- Try to involve your employees in cost cutting measures by asking them to share ideas that all can embrace.
Things to consider to enhance top and bottom lines:
Strategies can be enacted to increase your top line which can help boost the bottom line. Initiatives such as expanding product lines, finding different avenues / channels to sell products through, increasing prices, lowering product returns through quality/improvement initiatives, and offering incentives for bundle purchases, along with any other methods to increase the sales component.
Strategies to increase bottom line would be through the reduction of expenses, such as in operations. Consider if there is any property or equipment that is not needed and can be sold. Examine your supply channels, limit those that are not needed and negotiate better pricing where you can. Larger operating facilities are expensive to keep the lights and utilities on, so review areas that do not need to be heated/cooled or have electricity running. Looking for ways to decrease costs can be time consuming but can definitely pay off. Sometimes you can spare your human capital if you are able to cut enough waste out of the other areas in your business.
- Both the top-line and bottom-line figures are very useful in determining the financial strength of a company, which are interdependent, but they are not interchangeable.
- The bottom line describes how efficient a company is with spending and managing costs. Demonstrating your efficiencies here can be of great benefit in the long run for any business.
- The top line indicates how effective a company is at generating sales and revenue, but does not take into consideration any of the operating efficiencies which could have a dramatic impact on the bottom line, however the top line is the life blood for any company and is equally important.
If your company is in a holding pattern right now, or operating more or less as usual, it’s important to stay focused on cost cutting measures to ensure that any topline growth is not immediately eaten by costs that may be increasing or unnecessary.
About The Author: Victoria Manuel is a strategic consultant with Elite Holding Co. and has more than 25 years of experience leading business initiatives in all areas of organizations, positively affecting both Top and Bottom lines.
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