First things first: What is the top line and bottom line? These refer to the lines on a company’s income statement. Top-line revenue, which shows up at the top of the document, is the company’s gross sales for that year, while bottom-line profit (the bottom of the page) is the company’s net income. This is the amount left over after all taxes have been deducted, together with other expenses for the year: loans and other costs are included here, too. In the end, it’s a balancing act.
Tricia Gugler, CFO, says this: “we need to be disciplined in how we deploy our capital to drive growth in both the short and long term while balancing bottom-line results and returns."
Top-Line Revenue
When a company experiences an increase in sales or revenue, they’ll see top-line growth. Chances are, the company has invested in successful marketing and sales campaigns that have brought in both inbound and outbound sales, or they’ve launched a new product or service that saw some serious demand in the market.
Another way to see top-line growth is through the acquisition of another company. The top line shows sales, but it does not account for deductions and expenses. If a company made a million bucks, but spent two million on new software, the bottom line will be in red.
Bottom-Line Profit
This number will inevitably be smaller than your top-line revenue, but the difference between the two numbers is important: Less difference means fewer expenses for that year.
In order to increase your bottom-line growth, some Fractional CFO's will recommend reducing your expenses as the first step. This can be through decreasing wages, taking advantage of the work-from-home wave, and receiving all of the tax benefits and deductions you’re legally entitled to. But what about increasing your REVENUE? At Adam Kae & Associates, we believe making more money is the better option. You will need a strategic, growth-focused Fractional CFO to come alongside you.
*It’s important to remember that your bottom-line profit is the money that carries over to the following year, and this is what can and should be reinvested into the company for even more top-line revenue.
So what should a Fractional CFO look at?
The short answer is: Both. A good Fractional CFO will take both numbers into account in order to create or alter a financial strategy for the following year. This may include plans for increasing sales and revenue, strategies for reducing taxes and other expenses, or other clever ways to help the company end up with the most profit possible.
Since this is a delicate act, it’s recommended that you hire a Fractional CFO with knowledge on a wide variety of strategies in order to boost both lines. And don’t be afraid to look for a second opinion with a part-time, Fractional CFO. Two heads work better than one.
If you aren't sure where to start, let's have a no-pressure conversation. Or, if you live nearby (or are willing to take a road trip), let's golf.
Fractional CFO and Founder of Adam Kae & Associates
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Disclaimer: This article contains information and opinions from Adam Kae & Associates, and the information and opinions should not necessarily be seen as the best possible solutions for your business. Please contact us at info@adamkae.com to help you find the best solutions for your business.