The Top Line - It All Starts Here

One of the three reports found in a standard set of financial statements is a profit and loss statement (P&L).  This statement is also known as an income statement or statement of income. It tells you what the sales and expenses of the business were in a particular time period, usually a year.  Once you subtract all of the expenses from sales you know whether or not you made profit.  It sounds pretty simple but the rules of accounting make it a bit more complicated.

The top line on a P&L is the sales or revenue number for the period.  This is where everything begins.  Somehow or another you have to sell whatever it is that you have to offer.  Maybe it is a product or a service. Whatever it is someone needs to buy it and pay for it.  Your objective with the top line is to grow it.  Pretty elementary.  But you don't just want to grow, you want to grow dramatically.  If you are not growing, something is wrong. Your costs go up and it's difficult for you to pass all of your cost increases along to customers so you need to grow revenue just to stay ahead.  Revenue growth usually goes hand in hand with profit growth and cash growth.  In the end, that's what you want, lots of cash.  It starts with sales.

The top line is a reflection of your marketing and sales plan and activities.  If sales are not growing or if they are declining, you should determine why.  You have to find a remedy.  If you can't figure it out, get some help.  Talk to people.  Check with your trade association.  Blog, chat, network.  Talk to customers, prospects and the competition if you can. It's pretty hard to stay in business long term without growing sales.

Stagnation, or worse, on the top line is a serious problem and needs your attention. I know that many small businesses struggle with sales but survive by cutting costs,operating efficiently or by innovating.  These may be short term measures that will keep the business afloat and preserve the assets of the company long enough to find the problem and fix it. But they are not a substitute for growth.

However, many small businesses have the same sales volume year after year.  One company does five hundred thousand, another may do fifty million and yet another does ten million. Try as you may, growth seems to be out of the question and maintaining what you have is the best you can do. If you can't grow revenue you need to look elsewhere in the company to become more efficient as a means of improving the business.

If sales are growing, you want to grow them more and grow them faster, keeping in mind that growth that is too rapid can put you out of business by running out of cash. Reasonable, managed growth is the order of the day. 

As a benchmark, you want to compare your sales this year to other years and you may want to compare yourself to peers if possible.

If past sales have been good, but have slipped recently, you want to know why and you want to develop a plan to get them growing again.  From time to time you are going to lose sales through no fault of your own and you may have to wait for more favorable conditions or circumstances to arise before you can remedy the situation. 

Managing the top line for growth is the objective.  If you can't grow the top line you want to be as efficient as possible.  In any case, you always want to periodically review the mix of products and services you are selling as well as your customer mix.  Is what you are selling a dying product line or the coming thing?  Do you have troublesome customers or great customers?  Would a change in either improve the business? 

The numbers in financial statements tell a story.  As a manager, you want to know the story behind the numbers.  Good stories turn into great companies.  Bad stories need to be rewritten.