Small Business Growth

Top-Line vs. Bottom-Line Growth and Why It Matters for Small Businesses

Running a small business can be challenging. Numbers in, numbers out, what does it all mean? Income statements, while often confusing, hold crucial indicators that can help you measure and understand your growth.

Adam Torkildson
Adam Torkildson is a founder, investor, small business owner, and operations nut. He lives and works in Utah.

Understanding your company's income statement allows you to identify where your money is going, where you need to expand, and where you can minimize your expenses. Your statement's top and bottom lines are two of the most significant sections.

In this article, I’ll teach you how to read and act upon these critical parts of your income statement:

  • Total revenue or gross sales (top line).
  • Your net income after deducting all costs (bottom line).
  • Whether to focus on increasing your top line, bottom line, or both.

What exactly is an income statement? 

First, let's learn the basics. An income statement is a financial statement that depicts an organization's financial performance, including profits and losses, over a specific period. The statement might be issued yearly, quarterly, or over any period that makes sense for your company.

What exactly is top-line growth?

Examine your income statement. The top line displays your total revenue, often known as total profits or gross sales. Essentially, this is the amount of money your company generated before any costs. You may increase this figure by growing sales and bringing in more income.

What exactly is bottom-line growth?

The bottom line is the last section of your income statement and reflects your company's net income after costs. The bottom line is as follows:

Entire revenue - total costs = net income (the bottom line).

Consider a small firm with a total sales of $300,000 to illustrate the bottom-line formula. The firm will incur a variety of costs to generate that money. Assume they need to rent shop space, hire a salesperson, buy equipment, procure raw supplies, and make additional purchases. If your costs are $100,000, you will deduct that amount from your total revenue ($300,000) to arrive at a bottom line, or net income, of $200,000.

Your bottom line may expand when your sales increase, but if your costs rise, your bottom line may remain the same—or even decline. It's best to always think about both the top and bottom lines.

How to increase top-line revenue

There are several strategies to improve your cash flow, but it may take some trial and error to find the optimal path for your business.

Investing in marketing, for example, can improve your consumer base, but you must ensure that you utilize marketing strategies that create sales. You might also increase your bottom line by expanding into new markets or offering a broader choice of products or services. You will have achieved top-line growth if these tactics successfully grow sales.

The crucial thing to understand is that the top line only represents gross income, but the bottom line (revenue minus costs) provides a complete view of your company's financial status.

Example of income statement showing the top line and the bottom line

How to increase bottom-line revenue

Your bottom line will naturally rise if your expenditures remain constant while your top-line income increases. So, if you want to raise the bottom line, start by raising your top line.

If your sales stagnate, though, it's time to get more imaginative about boosting your net income. You may cut your operational costs in a variety of ways. One way to reduce corners is to eliminate fraud, which is a form of loss that no business wants to face. 

ClearSpend’s spend control tools are an excellent way to reduce fraudulent spending on your corporate cards if you issue them. You can also work with your CPA to investigate and take advantage of tax breaks relevant to your business (you never know where you might uncover some excellent savings).

The general strategy is to look closely at where you are spending the most money and find opportunities to cut back. Are you obtaining the best raw material prices possible? Would better software save you time and money? Looking at your spending line by line can uncover the best strategy.

Why is this so important to small businesses?

The gap between top-line and bottom-line growth reveals how much you spend to make a profit. Understanding this gap allows you to assess costs, reinvent budgets, and create the thriving business you’ve always wanted.

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