Revenue, Expenses, and the Bottom Line by ed2go Instructor Matt Crabtree
Every business and individual wants to increase their bottom line (net income). Intuitively, we all know that to do this we need to bring in more money or cut costs. But do you know how each of these tactics actually impacts the bottom line? Let’s take a quick look!
The first option is to bring in more money by increasing revenue. For a business, this means more sales; and for an individual, it’s more income. Let’s use the example of increasing revenue by $5,000 for the year. Does this mean our bottom line will also increase by $5,000? Unfortunately, that’s not necessarily the case. Have you ever received a raise but had to buy new clothes for the job or increase driving expenses? Expenses tend to rise with increases in revenue. And even if you’re able to keep all other costs the same, your taxable revenue has increased, so you’ll ultimately pay more in taxes!
What about cutting costs? Well, the good thing about this option is that it has a direct impact on the bottom line. Think about it . . . if you want to increase your bottom line by $5,000, just find $5,000 to cut! I’m making this sound really simple, but that’s because it is. The only difficult part is finding where and how to make the cuts—and determining where this will fit into your overall financial strategy.
Matt Crabtree teaches Personal Finance for ed2go