The bottom line and the top line are two of the most important figures on a company’s income statement. The bottom line in business is a company’s net income. The top line is a company’s gross revenues, or total sales, before subtracting any operational costs.
You can define the bottom line as the company’s profits after deducting the following expenses from the top line:
- Cost of goods sold, including direct labor and materials
- Fixed overhead and administrative expenses
- Interest charges on loans and other debts
- Depreciation and amortization charges
- Federal, state and local income taxes
While both figures help to gauge business performance, each term is significant for different reasons. For example, the top line indicates business growth. It’s a measure of a company’s ability to market and sell its products against its competitors.
More revenue means that the company has more to spend on advertising, marketing, new product development and hiring additional employees. Companies can increase their top line by:
- Increasing advertising to gain new customers
- Adding new product lines
- Raising prices
- Improving product quality to elevate brand image and reduce returned sales
The bottom line in business demonstrates how efficiently a company can make a product or provide a service that creates enough gross profit to cover overhead expenses, while yielding a reasonable net profit.
Companies can boost their bottom line by:
- Lowering cost of materials by finding new suppliers
- Improving manufacturing productivity
- Reducing operating expenses
- Taking better advantage of tax benefits
At a minimum, a small business owner should be monitoring the company’s top and bottom lines on a monthly basis to stay focused on growth and manage costs effectively.