Successful managers focus on both the top line and the bottom line
Which is more important to the success of your business — the top line or the bottom line? This question came up when Rick Dacri, owner of Dacri and Associates, told me that he can easily see my financial philosophy shining through in each article I write. Rick noted that since I'm a financial professional, I naturally focus on the expenses that drive the bottom line. However, as a business owner and de facto sales manager, Rick focuses on the top line and believes that revenue drives the success of his business.
So who is right?
I believe both Rick and I are right, for very different reasons. You can't have a business without revenue, and you can't sustain your business without a healthy and realistic grasp on expenses. This means that everyone in your company needs to understand the "other side" and how their actions impact both the top and bottom lines of the business.
In theory, this seems simple, but there tends to be a great divide in the way salespeople are viewed by the production and administrative staff, and vice versa. The production and administrative staff usually think the salespeople spend all day entertaining clients while offering products at low prices just to make the sale. Salespeople can view production and administrative staff as task-oriented and uncreative (until it comes time to create policies that get in the way of growing the company).
In the spirit of the holidays, it's time for everyone to be thankful and appreciative of what the "other side" does. As the business owner or manager, make sure the people responsible for the top line and the bottom line work together for mutual success.
The top line (or ‘You can't make it up in volume')
Every business owner and all of their salespeople should know what mix of products and services make up their top line and what price point is being quoted for each offering. Your top-selling salesperson could drive you out of business if they are selling below cost in the hope that they can "make it up on volume."
I once worked at a startup company where the personable and strong-willed sales manager was clearly a driving force among the executives. Therefore, all decisions revolved around the sales process, with very little consideration given to the financial or technical implications. This resulted in salespeople making promises the technical staff could not keep and selling the product below cost, which worried the financial staff. Was there growth? Yes, and plenty of it. Was this growth sustainable? No.
You probably reward your salespeople on the amount of revenue they bring into the company. Since all revenue is not created equal, start educating (and rewarding) your salespeople on the true impact of their sales. In most cases, it's not worth generating revenue that actually costs the company money (or worse, cutting prices while you promise things you don't currently offer).
The bottom line (or ‘You can't cut your way to growth')
During another discussion, Rick and I agreed on the importance of managing expenses. According to Rick, "Many organizations focus on insuring the bottom line is positive, which is good. But you can't cut your way to growth. At certain points, you cut so deeply that you prevent yourself from growing your organization."
The trick is to know which operating expenses need to be cut and which need to be increased. Make sure your plans for revenue generation truly add to your top line (i.e. are your salespeople making profitable sales, is your marketing plan reaching potential clients). Review your expenses to see if you are paying for anything you are either not using or can find elsewhere at a better price without sacrificing quality.
Provide an overview of your entire financial statement during company meetings so people see both the top and bottom lines. Talk about how a recent sale impacted the operating unit. Review your income statement and balance sheet on a monthly basis so you have a good understanding of where your business is headed. If you are not skilled in this area, hire someone who can help you learn how to read financial statements and point out where you are doing well and where you have issues.
As the owner or manager of your business, you need to know how revenues and expenses work together. Your salespeople need to recognize the bottom line impact of each sale they make, and the people producing your product and dealing with administrative tasks need to understand and appreciate how important each sale is to your business. Both parts of your income statement need to be strong and in sync to create success.
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