Sometimes, when you talk to someone, they take a while getting to the point. You might tap your foot impatiently until you finally blurt out, “Well, what’s the bottom line?” The bottom line in business is just like the bottom line of a conversation.
You want to know if your business is profiting, but you have all sorts of expenses to deal with first. The bottom line is like a conclusion. It will help you determine what to do next.
What is the bottom line in business?
The bottom line in business is the amount of money left after you pay all expenses. You need to know your company’s bottom line to figure out if your business is profiting or losing money.
Your business’s bottom line is also called the net profit or net income. The number is either positive or negative and tells you how much money your business has left. If negative, it is referred to as net loss. It is the last line on an income statement, aka the bottom line.
Knowing the bottom line can help you figure out what to do to improve it. Take a look at these tips on how to increase the bottom line in your business.
How to increase a company’s bottom line
There are many factors that determine the bottom line in business. Sales revenue, expenses, and the economy all have a hand in the bottom line of a company. But, there are some steps you can take to improve your bottom line.
1. Cut back expenses
If you don’t have as many expenses to take out of your revenue, your company’s bottom line will increase. There are some easy ways you can cut back expenses in your small business.
You can also cut back expenses by decreasing the price of your lease. Instead of having your own building, share a lease with other businesses. Work on increasing your business’s bottom line before you take on a lease of your own.
Another way to cut back expenses is to use software instead of hiring outside help. For example, instead of hiring an accountant, you could use online accounting software to keep track of your accounts payable and receivable.
2. Increase sales
Another bottom line management strategy is to increase your sales. Some ways to do that include successful marketing and increasing productivity in the workplace.
Advertisements can have huge payoffs, but taking out more than a few ads can get pretty expensive. Take advantage of free marketing opportunities on social media. Small business social media marketing is a great way for you to advertise your business’s products, services, events, and upcoming discounts.
Productivity starts with your employees. Happy employees will be more productive than employees thinking about leaving.
Maybe increasing sales requires you to make more of a certain product that went out of stock because customers loved it so much. Or, maybe increasing sales relies on your employees’ abilities to communicate with customers. Whatever the case may be, you need well-trained and happy employees to increase sales.
3. Increase prices
Another way to receive more revenue is by increasing the price of your goods or services. But, this can also drive customers away. Carefully evaluate how to increase prices without losing customers, or you might end up doing more harm than good.
One way to increase your prices without causing a stir is to be upfront with your customers about the increase in prices. And, it helps if you enhance what you offer, like adding features or using better quality materials.
4. Make sure you receive payments
Sometimes, your bottom line is lower than you want it to be by no fault of your own. Your expenses might be cut back as far as they can go and you might be selling a lot of products.
What do you do if a customer won’t pay you? Not receiving payments on time or at all from your customers can really decrease your company’s bottom line. You can increase your chances of receiving payments by establishing a clear late payment policy and imposing late fees on your customers. And, you can even offer a discount for customers who pay early.
The bottom line
The bottom line in business tells you the amount of money your business has left after accounting for expenses. Compare your bottom line each month to experiment with how to improve it.
Note what you do differently each month to observe what helps and doesn’t help increase your bottom line. You will never be able to know exactly what determines your company’s bottom line since the market changes constantly. But cutting back expenses, increasing sales, increasing prices, and making sure you receive payments will certainly send you in the right direction.
Need help improving your business’s bottom line? Patriot’s online accounting software helps you track your expenses and income. That way, you know where your money is coming and going. Try it for free today!
This article has been updated from its original publication date of January 12, 2017.
This is not intended as legal advice; for more information, please click here.