Why an Increase in Revenue Does Not Always Mean an Increase in Income

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​Increasing top-line sales are a constant goal for every business, as it should be. As sales increase, the potential for other opportunities become a possible reality. Growth on the top line adds value to the company; it will allow the company to grow, create new departments, expand in marketing, do new R&D, and add to the bottom line.
 
One of the issues we run across with top-line growth is that the bottom-line does not always grow appropriately. It is a common oversight and can easily be missed if you are too wrapped up in the daily grind. The business does not have depth in your management team or at director levels or you as an owner have not been taught to recognize this. It can come from a lack of vital budgeting, knowledge of costs, P&L analytical thought, foresight, or acting reactionary.  The oversight can all be eliminated with strong operations. Operations are the heart of the company and dictate how everything will happen. If the operations are well put together, you will have known all of what we mentioned above. You will also have already had plans in place and forecasted it out.

Let us look at an example of this scenario. This establishment’s fundamental background is that it has successfully operated with profitable growth and a solid business base. The owners are very involved, but involved at the wrong level and are acting more as employees and not as owners. Many critical steps along the way of business development have been missed. However, they have never been a concern because there was always a profitable bottom-line. They made money, so all must be right. Because of their involvement, they never fully completed budgeting, standards, training, or operational manuals. They floated on, “we made money,” so we must be doing great and have everything right. This mindset  is common, and if you own a small or mid-sized company, it may be starting to sink in as you are reading that “yep” that is how we do it.” This company’s business starts to grow at a good pace. The top-line is increasing steadily, and so is the bottom-line, and the owners say all must be good with everything. But is it perfect? Is it right? Is the bottom-line reflecting the number that it should be? Are the owners making what they really should be for as hard as they are working? The answer is probably NO. I will get asked, how is this so? Both lines increased, we have more transactions, and we are making more. But the question is, how much more should you be making, and the answer is always “I don’t know.” Another question is, how much money was wasted or opportunities lost in the process of adding to the top line? Lastly, were you as an owner positioned right within the company as this was all happening? Again, usually followed up with another, “I do not know.”

The “I do not know” answer is one that can easily be changed to definitive, data-based answers. One that puts you in the position to lead the company and your teams. You have the answers. You can see the problems. You have the solution and measurables. You see opportunities and are making strategic plans to capitalize on those opportunities. Do not be the “I do not know” owner, and do not be the owner that leaves money on the table. That money cannot be picked up, it is lost forever. The missed opportunities cannot be capitalized on, and they too have passed. Position yourself correctly, set yourself up correctly, and maximize everything that you can in your company. By doing so,  as the top-line grows, you ensure that your bottom-line will reflect what it is supposed to. 

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