The last line on a balance sheet showing profit and loss is an example of the bottom line. Deteriorating bottom line impacts the entire value chain of the business. Never leave your bottom line to the bitter end, the earlier you improve it the more successful your business will be.
What is Bottom Line?
Investopedia explains, The bottom line refers to a company’s net earnings, net profit, net income or earnings per share (EPS). The reference to “bottom” describes the relative location of the net income figure on a company’s income statement. Bottom line also refers to any actions that may increase/decrease net earnings or a company’s overall profit. A company that is growing its net earnings or reducing its costs is said to be “improving its bottom line”.
Improving Bottom Line
Improving bottom line is a sure sign that your business is doing good. Bottom Line can be improved in two phases: growing revenues (i.e., generate top-line growth) and increasing efficiency (or cutting costs). Growing revenues is responsible for improving bottom line by making more sales and hence more profits. Increasing efficiency focus on cutting unnecessary cost, reducing employees, etc. By following both these measures businesses can improve their bottom line efficiently.
Here are 5 signs to find if bottom line is good for your business,
Growing Revenues
Increased Sales
Obviously! Increased sales are a sure signs of good business. Only through sales, a business can keep the cash flow going. If customers are finding value in your product, the sales will grow. Therefore, the revenue to the company will also grow.
Better Profit Margins
If the sales are high, yet your bottom line does not look good. There is only one sign that can play a larger role than any. It’s the Profit margin. You can sell more product than all your competitors together. You can have more than 50% of the market share. But, if your profit margin is less than your competitors, your bottom line might take a hit.
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Sales and Profit Margins are like two sides of the same coin. A careful balancing act needs to be performed to have an improved bottom line. Increase Sales and Better Profit Margins together is a telltale sign that your bottom line is good for your business in the first phase.
Additional Revenue Streams
A business has a core set of operations through which it earns its revenue. Due to seasonality or market conditions, the core product of your company may face less demand. Thus, to overcome these kind of seasonality and market challenges, some business diversifies into other additional revenue streams.
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These additional revenue streams come in the form of rental incomes, extending the expertise of your company, renting or leasing out equipment. Basically, the business looks at adding revenue through it non-core business opportunities. Most business, diversify into other streams of business opportunities either through vertical or horizontal integration to improve their bottom line.
Increasing Efficiency
Cut in Expenses
Too often, businesses focus on making money as the pathway to business growth. In reality, you can grow your business just as effectively by reducing outflows. When you tackle both, you’ll pad your bottom line even more.
Asses and cut back inventory you carry to align it more effectively with seasonal demand. Stop or reduce the products that are not making income or profit to the business. Of course, you’ll also want to question all spending to ensure it makes the best business sense rather than just cut costs across the company.
Burning Less Cash
While many entrepreneurs scale their business rapidly, they forget their burning cash. Speed isn’t necessarily wrong. The better approach is to scale without burning more cash. When you look at how to grow your business, look for signs in your bottom line how efficiently your deploying cash. If your scaling more than your sales, you will soon burn cash and run out of money.
Also Read : How to Keep a Business Afloat and Manage Debt?
If you take the story of unicorn startups, they have rapidly expanded their business by scaling fast without making much sales. The reason being is they are backed by wealth investor with deep pockets. These are people who are hoping to disrupt the market by gaining market share and later cash in. This is a high risk strategy; it might not be suitable for entrepreneurs who have less funding capabilities.
By growing revenue and improve efficiency with these 5 signs will help you find if the bottom line is good for your business.
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