Just desserts: top line versus bottom line growth

smores cupcake

If you are a home improvement contractor, it is fair to say that you are a fan of growth. We’re all a bit like kids at lunch comparing desserts – bigger is better, more dessert is superior to less dessert. In banking circles, we compare ourselves to one another by asset size. Contractors gravitate toward revenue comparisons (like most businesses) but the outcome is the same. The assumption is that the business claiming the bigger number is more successful than the business claiming the smaller number.

But what is success in business? Is it growing revenues to make the top line bigger than your peers? Is it increasing assets in banking to show that you have more under management? In both cases, comparisons of the top line figures is misleading. I’m sure most of us know of a contractor with substantial top line growth but huge expenses draining the money out of the company. Those companies often fail. In banking, the phenomenon is the same. The focus on asset growth is an excellent mask for bottom line weakness.

This is addressed with disciplined management. Growth in the top line or growth in assets is simply a means to an end. The bottom line of the P&L is the number that matters. If you are a business owner, revenues don’t put food on the table, profits do. Disciplined managers recognize the need to control expenses and manage threats to the business to ensure a healthy bottom line. That discipline includes the tight management of all the inputs/resources of the business. You add employees only when there is a shortage. You purchase assets only when they can be usefully deployed. You don’t incur expenses unless there is an appropriate return on those funds.

When comparing home improvement finance companies, you’ll often hear the claim that such-and-such company will help you close more sales. That’s important, but that’s a narrow focus on top line growth. Also important is what it costs you to close those sales. At Medallion Bank, we’re ultimately thinking about your bottom line. For you to have the bottom line growth you want, we’ve built a program that is attractive to consumers, effective for you, and strictly limits what you pay for it. We’re the kid at the lunch table with a bag full of desserts and we’re ready to share.

 

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