Business Understanding

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.