Top and bottom lines explained in plain English
In the world of business, it feels like there are hundreds of terms and phrases that we should be familiar with. For new business owners, it can be overwhelming, especially when it comes to financial terms.
For example, “top line” and “bottom line”: what do they mean? Both are really important, but it isn’t guaranteed you’ll learn about them. Let’s make sure they don’t catch you by surprise and take a look at what the two terms mean and where you’re likely to find them crop up in your business…
Finding your top and bottom lines
First things first: where can you find them? You’ll find your top and bottom line figures on your company income statement sometimes also called a profit and loss (P&L) statement. This document shows your revenue and expenses for a particular period. The top line, as the name suggests, can be found at the top of the income statement. And you can find the bottom line at the bottom. Simple enough.
So what exactly is your top line? In short, your top line is your company’s revenue or gross sales. So when a company has “top line growth”, the company is experiencing an increase in gross sales or revenue. It’s an indication of how well your company is performing in the market and against competitors.
The top line is all about sales and revenue. You can increase it by raising prices, increasing production, improving marketing efforts, and selling more products, for example.
The bottom line displays your income after deducting expenses. These expenses may include interest on loans and debts, general expenses like labour and materials, and income taxes. If you want to calculate your bottom line, it’s as easy as taking your top line figure and taking off these expenses. You should be tracking your outgoings already, so this is simple to do.
Increasing your bottom line is mostly about boosting efficiency. Find cheaper suppliers, increase productivity, or make use of any tax breaks and benefits to boost your bottom line. You can also consider other sources of income.
Although they might seem similar, the top line and bottom line are not interchangeable. Simply put, the top line highlights a business’s capability in sales generation, while the bottom line shows how efficiently a business can manage operational costs and expenses.
Both are important and businesses need to focus on both if they’re going to thrive. If you want to build your business into the best it can be, this is something you can use as a foundation for future changes.
At Big Hand, we know starting a business can be overwhelming. That’s why we’re here to help. As expert accountants and business consultants, we’re dedicated to helping your business be the best it can be. For more information, call us on 0161 327 2911.