Determine your profit or loss for each of the first three years.
The Income Statement, also referred to as the Profit and Loss Statement, tells you whether your business is earning profits or losing money. Do not confuse this with the financial view presented in the Cash Flow Forecast, which tells you how much money is remaining in your bank account at the beginning and end of each month. Contrary to what is believed by many new business owners, the Cash Flow Forecast does not tell how much a business is earning. I recommend that you re-read this paragraph until you understand it–it’s important.
The formula for the income statement is:
Sales – Cost of Goods Sold = Gross Margin
Gross Margin – Total Operating Expenses – Depreciation = Net Income (Or Loss) Before Tax
View the Example: Projected Income Statement
View the Example: Projected Income Summary
Action
If you are using Biz4Caster™, your Income Statement will be done automatically.
To complete this Element, you will first need to complete the Elements called Sales Forecast, Labor Projections, and Cash Flow Forecast, then:
- If you use the Income Statement Worksheet, this process still applies, except that you will need to complete your calculations manually.
- Enter the total Revenue or Sales for Year One.
- Enter the total Cost of Goods Sold (COGS) for Year One.
- Calculate the Gross Profit Margin by subtracting COGS from Revenue or Sales and enter the amount in the Summary.
- Enter all Operating Expenses for Year One. (These amounts will come from the totals column in the Cash Flow Forecast.)
- Total the Operating Expenses column and enter the amount in the Summary.
- Calculate Depreciation for Year One for all equipment over $250 in value. This may require that you use a separate Worksheet. Enter the total amount.
- In the Summary, use this formula to calculate the Net Income: Gross Profit Margin minus Total Operating Expenses plus Depreciation equals Net Income Before Tax.
- Determine what percentage your sales will increase for Years Two and Three, and repeat the process above, with careful consideration to any potential changes to each cost.