As an entrepreneur or small business owner, you may have come across the term “bottom line” several times either through conversation or by reading. But what’s the meaning of bottom line? And how do you calculate and improve the bottom line of your company? The bottom line is your earnings or net income. Put simply, the bottom line is the amount of money you’re left with after you pay for all your business expenses.
How to Calculate the Bottom Line
The bottom line is found at the bottom of your firm’s income statement . At the top of your income statement is sales and revenue, which is the money that your company generates by providing goods and services. As you go further down the income statement, you find other types of income and expenses.
To arrive at the bottom line, subtract the expenses of operating your business from the total revenue.
For example, suppose you’ve a total revenue of $500,000, an interest expense of $50,000, tax expense of $60,000, and other expenses that add up to $70,000. Your bottom line is $500,000 – ($50,000 + $60,000 + $70,000) = $320,000. This figure can go negative if your expenses exceed your revenues, and if that happens, you’ve got a net loss. Let’s say in the above example that your total revenue is only $155,000. Then, your bottom line is $170,000 – ($50,000 + $60,000 + $70,000) = $–25,000.
How to Increase Your Company’s Bottom Line
The economy, sales revenue, expenses, and other factors have a hand in the bottom line of your company. To improve your bottom line, consider these factors and take the following steps:
One way to improve this bottom line strategy is through increasing productivity and successful marketing. Be sure to make your employees happy by rewarding them and creating a friendly working environment if you want to improve productivity.
One simple way to increase your revenue is by raising your prices. But how do you increase prices without driving customers away? Enhance your products by making your packaging unique and adding features to your products. Be sure to communicate with your clients before you increase prices.
Cut Back Expenses
If you own a small business, you’re likely working on a shoe-string budget. And keeping your expenses low is one sure way to increase your revenue and bottom line. What are effective ways to reduce your business expenses?
- Share your lease with other businesses.
- Work from home rather than lease a building to operate your business.
- Take advantage of technology and use downloadable and online programs to manage your business processes.
Whether you’re a small business owner or manager, there are key points you need to remember about your bottom line. First, the bottom line changes from time to time depending on your prices, sales, and expenses such as the taxes you pay to the Canada Revenue Agency. It’s possible to increase your sales and prices but still decrease your bottom line, and it’s also possible to reduce your price and net sales but still improve your bottom line. The ideal solution for your business may depend on a combination of all three strategies.
Improve your cash flow with invoices, payments, and expense tracking. See how much cash you have on hand with QuickBooks.