Month: November 2022

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Breaking Down Top Line vs. Bottom Line Growth

Two of the most fundamental variables on your business’s income statement are its bottom line and top line. The bottom line of a company tells you what that business’s net income is. On the other hand, the top line shows a business’s gross revenues —before subtracting operating expenses— from total product sales, services rendered, or both.

Top-line growth is the rise in revenue generated by a business’s primary commercial activities. The bottom line “growth,” by contrast, reveals how well a business manages its spending and operational costs.

In this post, we define the bottom line and top line, examine how they vary, go through strategies for expanding each, and demonstrate how to compute the bottom line using the top line.

What Is the Top Line?

The phrase “top line” refers to a business’s revenue figures because revenues are listed at the top of an income statement. When a business experiences “top-line growth,” it means that its revenues or gross sales have increased. To increase your business’s top line:

  • Invest in converting new prospects into paying customers through advertising.
  • Expand into new and untapped markets y offering new products or services.
  • Improve the quality of your deliverables to organically generate word-of-mouth advertising and repeat business.
  • Raise the price of your products and services; if done right this can raise consumers’ perception of the quality of your products and services all on its own.

The top line reflects how well the business generates sales. It is a straightforward gross sales figure that shows how much money the business made within a specific time frame. Potential operating inefficiencies that impact the company’s bottom line are not taken into account when making top-line-only analyses. As a result, the top line does not account for costs paid by the business to produce products, such as the cost of goods sold (COGS). Neither does it reflect the impact of any discounts or reductions from returns.

What Does Top Line Revenue Mean?

Businesses in their early stages usually need to focus on growth at all costs. Quickly increasing top-line growth as much as possible lets a business gain market share and take advantage of the market potential, both of which are enticing to investors.

Based on how you analyze the business’s revenue statistics, you can use top-line data to help sales and marketing determine whether their target market is being reached, whether their sales strategies are effective and whether their advertisements and marketing efforts are producing new leads that actually result in sales.

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What Is the Bottom Line in Business?

The “bottom line” is so-called because net income is frequently the last number shown on an income statement. In other words, the bottom line of business ventures is defined as the business’s bottom line revenue minus expenses, such as:

  • Interest on debts
  • Fixed costs for administration and overhead
  • COGS, including labor and materials
  • Depreciation and amortization
  • Income taxes

The term “bottom line” can also refer to a business’s net earnings or profits.

By cutting costs, a business can boost its bottom line; products can be manufactured using new, more affordable input materials or through more efficient production techniques. Other ways to enhance the bottom line of a company include lowering employee pay and benefits, using less costly facilities, leveraging tax breaks, and lowering the cost of capital.

A Closer Look: What Does the Bottom Line Mean in Business?

When a business is more mature, the focus shifts away from pure top-line growth at all costs towards greater growth in the efficiency of production processes and systems. Mature businesses focus more on profit margin and net income when assessing the state of their finances. At the end of the day, any profitable business needs to have both a strong profit margin and a sizable bottom line.

Your business’s bottom line can be utilized to distribute dividends to investors Alternatively, your bottom line figure can be used for product development, location expansion, equipment acquisition, or any number of other investments for improving the company.

To determine the bottom line of business you’ll first need to know its top line once you have that, you can simply plug in the figures to use the formula below:

Bottom Line = Top Line – Total Expenses

The Difference Between the Top Line and Bottom Line

Knowing what plays into a business’s top and bottom lines helps investors and lenders judge if a company’s management is increasing sales and revenue while properly controlling expenditures. The same business decisions can differently affect how quickly the bottom line and top line increase.

When making a top line vs. bottom line analysis of your business, you need to use both numbers to measure its commercial performance, as each is important for separate purposes. The top line lets you see how much your business revenues have grown, while the bottom line of a company shows how well it is able to make products or render services to generate profit sufficient to offset overhead costs and produce a respectable net profit.

The bottom line can be used by businesses to finance expansion, pay dividends to shareholders, or make new investments. The top line is where businesses can draw funds for their operating budgets covering expenditures such as salaries, taxes, and overhead.

Highly profitable companies generally see to it that there is growth in both their top and bottom lines. Even with stagnant revenues, established businesses may still improve their bottom line by, instead, cutting costs —cost-cutting methods are usually resorted to when the economy is slow.

Conclusion — What Is More Important: Bottom Line or Top Line Sales?

The gap between top-line and bottom-line growth reveals how much you are spending to create a profit, allowing you to assess costs, reinvent budgets, and make the most of your business.

While both the top and bottom lines are significant metrics for businesses to monitor, startups focused on increasing sales may find the top line to be more pertinent. A stronger emphasis on the bottom line may be used by more mature businesses to develop sustainable economic strategies.

Along a similar line, E-Boost is here to help you develop an economic strategy for the success of your small business. Our consultants are just a call away—reach out, and we’ll show you how our financial toolkit can boost your business. From working capital, lines of credit, online banking, and more, E-Boost is your one-stop solution for small business funding.

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Tips to Start a Small Business

Every year, thousands of people set out to start their own businesses. But only about half are successful at generating a profit within their first five years of operation.

If you want your small business to succeed, these tips on starting a new business will help get you started on the right foot. E-boost’s consultants are here to give you some guidance on how to successfully start a small business that can grow into something big!

Know What Type of Business You Want to Start

Opening up your own small business can be an exciting opportunity, but it can also feel a little daunting. To help you get started and make sure you’re on the right track, the first thing you need to do is have a clear idea of what you want to offer.

If you’re passionate about the idea, it’s very likely that your offerings will bring value to consumers. Follow these simple steps to see if your idea is viable and can generate profit in the long run:

  • First off, what type of business are you interested in?
  • Secondly, where will this small business exist? In an online store? As a brick-and-mortar storefront?
  • Thirdly, are you ready to invest in this idea or would you rather just brainstorm ideas for starting small businesses? If it’s the latter, then you need to find investors
  • Finally, what skills do you have that could help with the day-to-day operation of your new small business? Do any already exist in the market or industry? What is the competition like?

If you want to open up a small retail business, then you should consider whether there is enough foot traffic in the area. Consider whether potential customers will be able to find your small business easily.

If not, then consider opening somewhere else (e.g., another location). A great way to find out about foot traffic is by looking at Google Maps and checking out street view (just zoom around!).

You can also ask local residents and shopkeepers if they think the area is good for small businesses.

You may also want to contact your city hall or chamber of commerce office – they might be able to provide you with information on past zoning changes or future plans for the neighborhood, which will give you an idea as to where interest rates are going in the near future.

Get Organized

There are many things that need to be done when starting up a small business startup. A quick way to get organized is by creating a spreadsheet (preferably on OneDrive or Google Drive so that you don’t lose important data).

Start by creating three columns: column one for tasks that you need to do, column two for the time it will take, and column three for the order in which you should do them. Make sure to schedule these as well!

Get an accountant: Not every small entrepreneur needs an accountant, but it’s best to have someone who can help with filing taxes and managing money so you don’t have to worry about keeping track of all those receipts or handling payments from your customers.

When choosing an accountant, make sure they specialize in what your company does! If you’re going into the cake-baking business, find someone who specializes in taxes for small businesses that bake cakes.

It may sound unnecessary, but there are a lot of little details that come with running a small business. No matter what type of small business you start, make sure to prioritize getting organized and finding qualified professionals who can help out when needed!

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Create a Budget

The first step in starting your small business is getting a budget. Be sure to include your startup costs, monthly expenses, and all the expected expenses you might have in the future.

Set a minimum amount of money you will need each month depending on how much you can afford. Again, doing this may be an added task to your routine, but it can really help to keep monitoring costs and make sure money is being spent in the right place.

Make your budget realistic with an affordable goal, as you can always take on more clients or raise prices later on. Another important piece of advice on how to start a small business is that it can take a small business 3 to 4 years to become profitable, so you must be patient.

Build a Strong Team

The success of your small business depends on the success of your team. So, hire good people and make sure they have the skills needed for their roles.

It may take time, but it’ll be worth it in the end. Best practices include thinking about what your core values are as an organization, how you want to treat customers and employees, etc.

Promote Your Business

For decades, small businesses were unable to compete with well-established competitors because the latter had the capital to invest in marketing. With online platforms, this has changed entirely.

Here’s how you can promote your small business without spending tons of money:

List Your Business on Google

This makes it simple for potential clients to identify the address and business hours of your organization. Customers can also leave reviews for your company online. You may increase your company’s visibility in online searches by setting up a Google My Business profile, which expands your reach for free.

Create Social Media Profiles

Social networking is now more of a requirement for businesses than a nice-to-have. You may actively interact, recruit, and inform your following using these channels. The best part is that creating a business account on the majority of social media platforms is totally free, making it one of the cheapest ways to promote your brand. However, you will have to spend money if you opt for paid postings and other social media ads.

Improve SEO

Your website will appear higher in the search results on Google with search engine optimization. The likelihood that customers will find your website when they search online for companies like yours is increased when relevant keywords are included across your company’s web pages and blog posts. However, SEO entails a lot more than just using keywords, so it’s beneficial to do some internet research or look for a book that explains how to optimize your site’s performance on search engines. You might also think about working with an SEO company to optimize your website.

Make Interesting Content

The secret to building brand recognition and establishing a connection with your target market is content. You can demonstrate your subject-matter expertise by producing interesting and educational content, whether through a blog, video tutorials, or infographics. Additionally, this also helps generate trust with viewers.

Are You Thinking of Starting a Small Business?

All of the tips mentioned above can help you start your business off on the right foot—but what about funding? E-Boost is here to help! Give us a call, and our financial consultants will help you figure out your options.

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A Guide to Net Revenue and Income

Net income (sometimes called net profit) is the money left over after paying all the expenses of running your business. It includes every dollar that’s earned from selling products and/or services, minus any money spent on marketing, R&D, operations, sales, and anything else you might spend money on as an entrepreneur.

It’s a simple calculation – total revenue minus total expenses – and it’s the single most important number to pay attention to as you grow your business and make decisions about what to do with your profits.

However, things get confusing when you realize that there’s another figure to keep in mind: net revenue. Even though it’s often used interchangeably with net income, they are not actually the same thing. They require two different calculations, and you can use both metrics to help you determine your net margin.

Read on, and we’ll explain the differences between all of these terms.

What Is the Difference Between Gross & Net Revenue?

Gross revenue is the total amount of money you bring in. Net revenue means the gross revenue minus any costs associated with running your business, including rent and utilities, marketing expenses, and salaries.

The net revenue formula is as follows:

Net Revenue = Gross Revenue – Direct Selling Expenses

A direct selling expense is any cost directly associated with making a sale. Some examples of direct selling expenses include:

  • Advertising and outreach
  • Commissions
  • Direct labor costs
  • Shipping and processing costs

Direct selling expenses DO NOT include:

  • Administrative expenses
  • Supervisory costs
  • Facility costs and rent

Those types of expenses are instead used to find net income, as that does take into account indirect expenses. Net income is calculated by subtracting operating costs and taxes from net revenue.

For example, if you have net revenues of $100,000 but operating costs of $60,000 and tax expenses of $20,000 your net income would be $20,000.

Net Income = Gross Revenue – Total Expenses

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How to Find Your Net Margin

To compare net income over time, it’s useful to calculate the net margin, which equals the net income divided by net revenue. Net income is a company’s net profit from its operations after deducting all expenses from revenues. It is often shown as net earnings or net earnings per share.

Net margin can be interpreted as a percentage—it indicates what portion of every dollar in net revenues is going toward covering operational expenses.

Net Margin = Net Income/Net Revenue 

Let’s assume that XYZ Company earns $1 million in net revenues for a year but has an operating expense of $800,000. The company’s net income would be $200,000 ($1 million – $800,000).

The percentage difference between net income and net revenue can be calculated by dividing net income by net revenue. So, we would divide 200,000 by 1 million to get 0.2 or 20%. Net income is then expressed as a percentage of net revenue.

In this example, the net margin is (200,000/1 million) * 100% = 2%. If the net margin increases, then the net income increases relative to the net revenue. If Net Margin decreases then net income is decreasing relative to net revenue.

Net margins are reported as whole numbers without decimal places because they are typically viewed on a quarterly basis, so there isn’t much need for accurate estimates within a quarter.

The Benefits of Knowing Your Net Revenue

Knowing your business’s total net revenue is important for many reasons, such as knowing how much profit you have made, what your expenses are, and what to charge for future services. It’s also helpful to know if you are making a profit or losing money. It’s also a very important metric for investors, as it helps them decide whether your company is worth investing in; if you have low net revenue and income year after year, they may pull their investments. You can also use this figure to determine how your company is doing in comparison to your competitors.

The best way to keep track of all this information is with a simple spreadsheet that calculates your income and expenses. You can calculate net income by subtracting the amount of costs from the amount of revenue.

Summing Up Gross Revenue, Net Revenue, and Net Income

Net revenue and net income are sometimes used interchangeably, but they are not the same thing! Net revenue is your total (or gross) revenue minus the cost of direct selling expenses, whereas net income takes indirect selling expenses into account.

Your net revenue is one of the most important figures to pay attention to as you grow your business and make decisions about what to do with your profits.

Reach Out to E-Boost Today

Business loans can help to improve your net revenue by allowing you to take on more profitable ventures. If you have a business that’s already making money, and you’re looking for ways to expand, a loan can be the answer.

Loans are also a good option if you’re just starting out and need some capital to get your operation up and running.

Whether you’re expanding or starting from scratch, taking advantage of what credit has to offer will not only benefit your net income in the long term, but it can also give you peace of mind in knowing that everything is taken care of.

At E-Boost, we are ready to help! We facilitate financial solutions for small businesses across the US — if you are overwhelmed with trying to get approved for a small business loan, our financial consultants will aid you.

By offering funding as well as other financial resources, our platform makes use of technology and transcends barriers to uncover potential growth areas. By working with us, you’ll get to enjoy our world-class customer service, cutting-edge technology, and extensive partner network.

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What Is a Small Business?

When it comes to capital, employees, and machinery, a small business is defined as one that operates on a much more modest scale.

Scaled-down companies that manufacture or provide a service on a limited scale are categorized as small businesses or industries. A country’s economic growth is directly tied to the success of these types of small businesses. The owner either makes a one-time purchase of machinery, industries, and plants or enters into a long-term lease or hire purchase agreement.

Let us look at a list of small business categories that you can open without having to worry about scaling up or initial capital issues.

Sole Proprietorship

The sole proprietorship is the most basic of the small business categories’ structure, consisting of an unincorporated company owned by a single person. As a result, it is not considered a distinct entity from its owner for legal purposes.

The formation of a sole proprietorship requires the fewest administrative steps and the least amount of paperwork of any business structure. In fact, you are already operating as a sole proprietor if you are charging customers directly for your services or products. Most business losses can be deducted directly from your personal tax return if you operate as a sole proprietor. There is no need to submit a supplemental tax form.

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General Partnership

In a general partnership, you and at least one other person own an entity that functions similarly to a sole proprietorship but is owned by all of you. Since no official documentation is necessary, you can begin your partnership agreement with just a handshake.

When filing your individual tax returns, you and your partners can claim a loss for your business. However, this also means that you have no say in the matter. When you form a business with others, you give up some of the control you would have had if you were working alone, and a major disagreement between you and your partners can be disastrous for the company.

To the same extent as a sole proprietorship, you and your partners will be held personally liable for the business’s debts and liabilities if you form a general partnership. That means you should get liability insurance in case your partner does something foolish or careless and you end up paying for it.

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Limited Partnership

A limited partnership is a form of business ownership in which at least one of the partners is not actively involved in running the company. In some cases, you may be able to restrict the amount of damage you can be held responsible for. Although limited partnerships share many of the same benefits as general partnerships, they differ significantly in one key respect: limited partners who assist in the formation of a company do not assume the same liability risk as full partners. Your personal liability is limited to the amount you put into the company.

a framework for lasting collaboration. In the event of a silent partner’s departure, the partnership will not automatically end.

C- Corporation

This is a company that exists in its own right under the law and enjoys many of the same protections as a natural person would. It has the legal capacity to borrow money, sue someone, acquire property, and enter into contracts in its own name.

One of the biggest benefits of forming a corporation is the ability to maintain your privacy. A corporation bears all the legal responsibility for its actions, unlike a partnership or sole proprietorship. This means that you may not have to pay any of the costs associated with a major lawsuit filed against your company. More tax breaks are available to this type of small business than to other business structures, and C-corporation owners may also have lower self-employment tax bills.

S-Corporation

This unique corporation structure can be used to sidestep the issue of double taxation.

An S-Corporation may be the best option if you seek the benefits of a corporation but are wary of being double taxed on your business income. As a result, you won’t have to pay any corporate tax on the money you make or lose as a business owner.

insurance against legal responsibility. If you form an S-Corporation instead of a C-Corporation, you will be much less likely to be held personally liable for the debts of the company.

Limited Liability Company (LLC)

The formation of a limited liability company, or LLC, is common among small business owners because it limits the owner’s personal liability. You can start an LLC on your own or with others, and its structure combines those of a sole proprietorship, partnership, and corporation (called LLC members).

An LLC abates the danger of being held personally responsible for anything. A limited liability company (LLC) shields business owners from personal responsibility for business debts. Having an LLC establishes a legal barrier between your business and your personal assets, protecting the latter in the event of a lawsuit against the former.

In Conclusion

If your company qualifies as any of the different types of small businesses, it may be able to apply for federally backed loans. Loans from the Small Business Administration (SBA) typically have better terms and interest rates than those provided by traditional lenders. Your company’s chances of being approved for such a loan may also be higher than they would be at a large, private bank. Other types of loans are available to small businesses as well, such as the cash advances offered by E-Boost to vendors based on their past sales.

How much you can borrow from the Small Business Administration (SBA) is determined by the loan program to which you apply, so reach out to us, and we’ll guide you along the way.