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What’s included in an income statement?
Income statement examples, how to create a profit and loss forecast.
6 min. read
Updated October 27, 2023
An income statement, also called a profit and loss statement (or P&L), is a fundamental tool for understanding how the revenue and expenses of your business stack up.
Simply put, it tells anyone at-a-glance if your business is profitable or not. Typically, an income statement is a list of revenue and expenses, with the company’s net profit listed at the end (check out the section on income statement examples below to see what it looks like).
Have you ever heard someone refer to a company’s “bottom line”? They’re talking about the last line in an income statement, the one that tells a reader the net profit of a company, or how profitable the company is over a given period of time (usually quarterly or annually) after all expenses have been accounted for.
This is the “profit” referred to when people say “profit and loss statement,” or what the “p” stands for in “P & L.” The “loss” is what happens when your expenses exceed your revenue; when a company is not profitable and therefore running at a loss.
As you read on, keep in mind that cash and profits aren’t the same thing. For more on how they’re different, check out this article .
The top line of your profit and loss statement will be the money that you have coming in, or your revenue from sales. This number should be your initial revenue from sales without any deductions.
The top line of your income statement is really just as important as the bottom line; all of the direct costs and expenses will be taken out of this beginning number. The smaller it is, the smaller the expenses have to be if you’re going to stay in the black.
If you’re writing a business plan document and don’t yet have money coming in, you might be wondering how you would arrive at a sales number for a financial forecast. It’s normal for the financials of a business plan to be your best educated guess at what the next few years of numbers will be. No one can predict the future, but you can make a reasonable plan.
Check out this article about forecasting sales for more information.
Direct costs, also referred to as the cost of goods sold, or COGS, is just what it sounds like: How much does it cost you to make the product or deliver the service related to that sale? You wouldn’t include items such as rent for an office space in this area, but the things that directly contribute to the product you sell.
For example, to a bookstore, the direct cost of sales is what the store paid for the books it sold; but to a publisher, its direct costs include authors’ royalties, printing, paper, and ink. A manufacturer’s direct costs include materials and labor. A reseller’s direct costs are what the reseller paid to purchase the products it’s selling.
If you only sell services, it’s possible that you have no direct costs or very low direct costs as a percentage of sales; but even accountants and attorneys have subcontractors, research, and photocopying that can be included in direct costs.
Here’s a simple rule of thumb to distinguish between direct costs and regular expenses: If you pay for something, regardless of whether you make 1 sale or 100 sales, that’s a regular expense. Think salaries, utilities, insurance, and rent. If you only pay for something when you make a sale, that’s a direct cost. Think inventory and paper reports you deliver to clients.
Gross margin is also referred to as gross profit. This number refers to the difference between the revenue and direct costs on your income statement.
Revenue – Direct Costs = Gross Margin
This number is very important because it conveys two critical pieces of information: 1.) how much of your revenue is being funneled into direct costs (the smaller the number, the better), and 2.) how much you have left over for all of the company’s other expenses. If the number after direct costs is smaller than the total of your operating expenses, you’ll know immediately that you’re not profitable.
Operating expenses are where you list all of your regular expenses as line items, excluding your costs of goods sold.
So, you have to take stock of everything else your company pays for to keep the doors open: rent, payroll, utilities, marketing—include all of those fixed expenses here.
Remember that each individual purchase doesn’t need its own line item. For ease of reading, it’s better to group things together into categories of expenses—for example, office supplies, or advertising costs.
Operating income is also referred to as EBITDA, or earnings before interest, taxes, depreciation, and amortization. You calculate your operating income by subtracting your total operating expenses from your gross margin.
Gross Margin – Operating Expenses = Operating Income
Operating income is considered the most reliable number reflecting a company’s profitability. As such, this is a line item to keep your eye on, especially if you’re presenting to investors . Is it a number that inspires confidence?
This is fairly straightforward—here you would include any interest payments that the company is making on its loans. If this doesn’t apply to you, skip it.
Depreciation and amortization
These are non-cash expenses associated with your assets, both tangible and intangible. Depreciation is an accounting concept based on the idea that over time, a tangible asset, like a car or piece of machinery, loses its value, or depreciates. After several years, the asset will be worth less and you record that change in value as an expense on your P&L.
With intangible assets, you’ll use a concept called amortization to write off their cost over time. An example here would be a copyright or patent that your business might purchase from another company. If the patent lasts for 20 years and it cost your company $1 million to purchase the patent, you would then expense 1/20th of the cost every year for the life of the patent. This expense for an intangible asset would be included in the amortization row of the income statement.
This will reflect the income tax amount that has been paid, or the amount that you expect to pay, depending on whether you are recording planned or actual values. Some companies set aside an estimated amount of money to cover this expected expense.
Total expenses is exactly what it sounds like: it’s the total of all of your expenses, including interest, taxes, depreciation, and amortization.
The simplest way to calculate your total expenses is to just take your direct costs, add operating expenses, and then add the additional expenses of interest, taxes, depreciation, and amortization:
Total Expenses = Direct Costs + Operating Expenses + Interest + Taxes + Depreciation + Amortization
Net profit, also referred to as net income or net earnings, is the proverbial bottom line. This is the at-a-glance factor that will determine the answer to the question, are you in the red? You calculate net profit by subtracting total expenses from revenue:
Net Profit = Revenue – Total Expenses
Remember that this number started at the top line, with your revenue from sales. Then everything else was taken out of that initial sum. If this number is negative, you’ll know that you’re running at a loss. Either your expenses are too high, you’re revenue is in a slump, or both—and it might be time to reevaluate strategy.
Because the terminology surrounding income statements is variable and all businesses are different, not all of them will look exactly the same, but the core information of revenue minus all expenses (including direct costs) equals profit will be present in each one.
Here is an income statement from Nike, to give you a general idea:
An income statement from Nike .
As you can see, while Nike uses a variety of terms to explain what their expenses are and name each line item as clearly as possible, the takeaway is still the bottom line, their net income.
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Tim berry on business planning, starting and growing your business, and having a life in the meantime., standard business plan financials: projected profit and loss.
Continuing with my series here on standard business plan financials, all taken from my Lean Business Planning site, the Profit and Loss, also called Income Statement, is probably the most standard of all financial statements. And the projected profit and loss, or projected income (or pro-forma profit and loss or pro-forma income) is also the most standard of the financial projections in a business plan.
- It starts with Sales, which is why business people who like buzzwords will sometimes refer to sales as “the top line.”
- It then shows Direct Costs (or COGS, or Unit Costs).
- Then Gross Margin, Sales less Direct Costs.
- Then operating expenses.
- Gross margin less operating expenses is gross profit, also called EBITDA for “earnings before interest, taxes, depreciation and amortization.” I use EBITDA instead of the more traditional EBIT (earnings before interest and taxes). I explained that choice and depreciation and amortization as well in Financial Projection Tips and Traps , in the previous section.
- Then it shows depreciation, interest expenses, and then taxes…
- Then, at the very bottom, Net Profit; this is why so many people refer to net profit as “the bottom line,” which has also come to mean the conclusion, or main point, in a discussion.
The following illustration shows a simple Projected Profit and Loss for the bicycle store I’ve been using as an example. This example doesn’t divide operating expenses into categories. The format and math start with sales at the top. You’ll find that same basic layout in everything from small business accounting statements to the financial disclosures of large enterprises whose stock is traded on public markets. Companies vary widely on how much detail they include. And projections are always different from statements, because of Planning not accounting . But still this is standard.
A lean business plan will normally include sales, costs of sales, and expenses. To take it from there to a more formal projected Profit and Loss is a matter of collecting forecasts from the lean plan. The sales and costs of sales go at the top, then operating expenses. Calculating net profit is simple math.
Keep your assumptions simple. Remember our principle about planning and accounting. Don’t try to calculate interest based on a complex series of debt instruments; just average your interest over the projected debt. Don’t try to do graduated tax rates; use an average tax percentage for a profitable company.
Notice that the Profit and Loss involves only four of the Six Key Financial Terms . While a Profit and Loss Statement or Projected Profit and Loss affects the Balance Sheet because earnings are part of capital, it includes only sales, costs, expenses, and profit.
Hi, In case of bank financing for machineries and working capital, how can it be broken down in to the expense stream? ( capital + interest)
When you spend on assets is not deductible from income, and is therefore not an expense. What you spent to repay the principle of a loan is not deductible, and therefore not an expense. The interest on a loan is deductible, and is an expense.
Excuse me, may I know if the project profit & loss should plan for the first year only or for year 1-3 in business plan of a new company?
Kattie Wan, I recommend for normal cases the projected profit and loss monthly for the first 12 months, and two years annually after that. There are always special cases, though; every business is different.
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Writing a Business Plan—Financial Projections
Spell out your financial forecast in dollars and sense
Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.
The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.
As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.
In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.
What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.
Cash Flow Statement
As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.
Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.
Profit and Loss Statement
Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.
You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.
If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.
When putting together your financial projections, keep some general tips in mind:
- Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
- Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
- Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
- Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.
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Profit and Loss Template
A Profit and Loss Statement is another name for the Income Statement . If you want to create a profit and loss statement, you can use our income statement template and change the title. The Profit and Loss Template below is used for creating a 3-year projection , or an estimate of how you expect your business to perform from year to year. The profit and loss projection template is based on our Business Budget Template and uses the same income and business expense categories.
If you'd like to perform a cash flow analysis, and are looking for a 12-month profit and loss template, try the 12-Month Business Budget Template . All you would need to do is change the title to "12-Month Profit and Loss Projection." You can also use the profit and loss template below for a monthly cash flow analysis by changing the column labels from years to months.
Profit and Loss Projection Template
Other versions, template details.
License : Private Use (not for distribution or resale)
"No installation, no macros - just a simple spreadsheet" - by Jon Wittwer
The Profit and Loss Projection Template helps you create a 3-year projection of income and expenses for your business. It uses the same list of categories as the business budget , but also includes columns for calculating the Percentage of Total Sales , which helps you to analyze cost of goods sold and operating expenses.
This workbook contains two profit and loss templates designed for companies providing services or selling goods. The main difference is that the Goods worksheet includes a Cost of Goods Sold section for recording inventory and purchases and calculating Gross Profit.
Using the Profit and Loss Template
The difference between a business budget and a profit and loss projection is subtle, but important. After creating a profit and loss projection, you could simply change the title of your spreadsheet to "Budget". However, if you are like me, your budget will be much more conservative than your projection. A projection should be as realistic as possible.
The profit and loss template includes the same set of categories as the business budget, and information about income categories and expense categories can be found on the Income Statement and Business Budget pages.
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How to Create Financial Projections for Your Business
Written by Dave Lavinsky
As an entrepreneur, you spend months, even years coming up with ideas to start or grow your business. Then you write a business plan and try to convince someone (a co-founder, a banker, or an investor) that your idea is worthy of investment. The most crucial part of convincing them is your financial projections.
By creating financial projections, you have the opportunity to see the potential financial forecasting and impact of your ideas. Your financial projections (also known as your financial model) will help you understand the viability of your thoughts and help potential investors or lenders grasp the potential ROI (return on investment) of funding you.
This article will show you how to make financial projections for a startup business plan or an existing business. You will learn what to include in your financial projections, why they are essential, and how you can create them effectively.
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What are Financial Projections?
Your financial projections will be the most analyzed part of your business plan by investors and/or banks. While never a precise prediction of future performance, an excellent financial model outlines the core assumptions of your business and helps you and others evaluate capital requirements, risks involved, and rewards that successful execution will deliver.
Having a solid framework in place also will help you compare your performance to the financial projections and evaluate how your business is progressing. If your performance is behind your projections, you will have a framework in place to assess the effects of lowering costs, increasing prices, or even reimagining your model. In the happy case that you exceed your business projections, you can use your framework to plan for accelerated growth, new hires, or additional expansion investments.
Hence, the use of financial projections is multi-fold and crucial for the success of any business. Your financial projections should include three core financial statements – the income statement, the cash flow statement, and the balance sheet. The following section explains each statement in detail.
Necessary Financial Statements
The three financial statements are the income statement, the cash flow statement, and the balance sheet. You will learn how to create each one in detail below.
Income Statement Projection
The projected income statement is also referred to as a profit and loss statement and showcases your business’s revenues and expenses for a specific period.
To create an income statement, you first will need to chart out a sales forecast by taking realistic estimates of units sold and multiplying them by price per unit to arrive at a total sales number. Then, estimate the cost of these units and multiply them by the number of units to get the cost of sales. Finally, calculate your gross margin by subtracting the cost of sales from your sales.
Once you have calculated your gross margin, deduct items like wages, rent, marketing costs, and other expenses that you plan to pay to facilitate your business’s operations. The resulting total represents your projected operating income, which is a critical business metric.
Plan to create an income statement monthly until your projected break-even, or the point at which future revenues outpace total expenses, and you reflect operating profit. From there, annual income statements will suffice.
Consider a sample income statement for a retail store below:
Cash Flow Projection
As the name indicates, a cash flow statement shows the cash flowing in and out of your business. The cash flow statement incorporates cash from business operations and includes cash inflows and outflows from investment and financing activities to deliver a holistic cash picture of your company.
Investment activities include purchasing land or equipment or research & development activities that aren’t necessarily part of daily operations. Cash movements due to financing activities include cash flowing in a business through investors and/or banks and cash flowing out due to debt repayment or distributions made to shareholders.
You should total all these three components of a cash flow projection for any specified period to arrive at a total ending cash balance. Constructing solid cash flow projections will ensure you anticipate capital needs to carry the business to a place of sustainable operations.
Below is a simple cash flow statement for the same retail store:
Balance Sheet Projection
A balance sheet shows your company’s assets, liabilities, and owner’s equity for a certain period and provides a snapshot in time of your business performance. Assets include things of value that the business owns, such as inventory, capital, and land. Liabilities, on the other hand, are legally bound commitments like payables for goods or services rendered and debt. Finally, owner’s equity refers to the amount that is remaining once liabilities are paid off. Assets must total – or balance – liabilities and equity.
Your startup financial documents should include annual balance sheets that show the changing balance of assets, liabilities, and equity as the business progresses. Ideally, that progression shows a reduction in liabilities and an increase in equity over time.
While constructing these varied business projections, remember to be flexible. You likely will need to go back and forth between the different financial statements since working on one will necessitate changes to the others.
Below is a simple balance sheet for the retail store:
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Creating Financial Projections
When it comes to financial forecasting, simplicity is key. Your financial projections do not have to be overly sophisticated and complicated to impress, and convoluted projections likely will have the opposite effect on potential investors. Keep your tables and graphs simple and fill them with credible data that inspires confidence in your plan and vision. The below tips will help bolster your financial projections.
Create a List of Assumptions
Your financial projections should be tied to a list of assumptions. For example, one assumption will be the initial monthly cash sales you achieve. Another assumption will be your monthly growth rate. As you can imagine, changing either of these assumptions will significantly impact your financial projections.
As a result, tie your income statement, balance sheet, and cash flow statements to your assumptions. That way, if you change your assumptions, all of your financial projections automatically update.
Below are the key assumptions to include in your financial model:
For EACH essential product or service you offer:
- What is the number of units you expect to sell each month?
- What is your expected monthly sales growth rate?
- What is the average price that you will charge per product or service unit sold?
- How much do you expect to raise your prices each year?
- How much does it cost you to produce or deliver each unit sold?
- How much (if at all) do you expect your direct product costs to grow each year?
For EACH subscription/membership, you offer:
- What is the monthly/quarterly/annual price of your membership?
- How many members do you have now, or how many members do you expect to gain in the first month/quarter/year?
- What is your projected monthly/quarterly/annual growth rate in the number of members?
- What is your projected monthly/quarterly/annual member churn (the percentage of members that will cancel each month/quarter/year)?
- What is the average monthly/quarterly/annual direct cost to serve each member (if applicable)?
- What is your monthly salary? What is the annual growth rate in your salary?
- What is your monthly salary for the rest of your team? What is the expected annual growth rate in your team’s salaries?
- What is your initial monthly marketing expense? What is the expected annual growth rate in your marketing expense?
- What is your initial monthly rent + utility expense? What is the expected annual growth rate in your rent + utility expense?
- What is your initial monthly insurance expense? What is the expected annual growth rate in your insurance expense?
- What is your initial monthly office supplies expense? What is the expected annual growth rate in your office supplies expense?
- What is your initial monthly cost for “other” expenses? What is the expected annual growth rate in your “other” expenses?
Assumptions related to Capital Expenditures, Funding, Tax, and Balance Sheet Items
- How much money do you need for Capital Expenditures in your first year (to buy computers, desks, equipment, space build-out, etc.)?
- How much other funding do you need right now?
- What percent of the funding will be financed by Debt (versus equity)?
- What Corporate Tax Rate would you like to apply to company profits?
- What is your Current Liabilities Turnover (in the number of days)?
- What are your Current Assets, excluding cash (in the number of days)?
- What is your Depreciation rate?
- What is your Amortization number of Years?
- What is the number of years in which your debt (loan) must be paid back?
- What is your Debt Payback interest rate?
Create Two Scenarios
It would be best if you used your assumptions to create two sets of financial projections that exhibit two very different scenarios. One is your best-case scenario, and the other is your worst-case. Investors are usually very interested in how a business plan will play out in both these scenarios, allowing them to better analyze the robustness and potential profitability of a business.
Conduct a Ratio Analysis
Gain an understanding of average industry financial ratios, including operating ratios, profitability ratios, return on investment ratios, and the like. You can then compare your own estimates with these existing ratios to evaluate costs you may have overlooked or find historical financial data to support your projected performance. This ratio analysis helps ensure your financial projections are neither excessively optimistic nor excessively pessimistic.
It is easy to get carried away when dealing with estimates and you end up with very optimistic financial projections that will feel untenable to an objective audience. Investors are quick to notice and question inflated figures. Rather than excite investors, such scenarios will compromise your legitimacy.
Create Multi-Year Financial Projections
The first year of your financial projections should be presented on a granular, monthly basis. For subsequent years, annual projections will suffice. It is advised to have three- or five-year projections ready when you start courting investors. Since your plan needs to be succinct, you can add yearly projections as appendices to your main plan.
You should now know how to create financial projections for your business plan. In addition to creating your full projections as their own document, you will need to insert your financial projections into your plan. In your executive summary, Insert your topline projections, that is, just your sales, gross margins, recurring expenses, EBITDA (earnings before interest, taxes, depreciation, and amortization), and net income). In the financial plan section of your plan, insert your key assumptions and a little more detail than your topline projections. Include your full financial model in the appendix of your plan.
Other Resources for Writing Your Business Plan
- How to Write an Executive Summary
- How to Expertly Write the Company Description in Your Business Plan
- How to Write the Market Analysis Section of a Business Plan
- The Customer Analysis Section of Your Business Plan
- Completing the Competitive Analysis Section of Your Business Plan
- How to Write the Management Team Section of a Business Plan + Examples
- Financial Assumptions and Your Business Plan
- Everything You Need to Know about the Business Plan Appendix
- Business Plan Conclusion: Summary & Recap
Other Helpful Business Plan Articles & Templates
Free 1-year Financial Projection Template
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Free excel template to create financial projections for any business startup and first year. Forecast revenue, expenses, employee costs and generate an income statement, balance sheet, and cash flow pro forma automatically
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Free 1 Year Pro Forma Template
Download our 12 months financial projection template for free. This tool will allow you to:
- Forecast startup costs
- Project your first 12 months of product or service revenue
- Forecast your operating expenses
- Add Salary Forecasts for your employees
Once you have input all of your own assumptions, you will be able to generate:
- 12 month pro forma income statement
- 12 month cash flow forecast
- 12 month balance sheet projection
- Basic graphs and charts
This free financial model is industry agnostic. If you need an industry specific financial model you can check out ProjectionHub’s premium pro forma templates .
Below you will be able to see some examples of the input and outputs of the projection spreadsheet.
Financial Model Input Examples
Below you will be able to see examples of the input tabs for startup costs, fixed assets, revenue, operating expenses and salaries.
Example of Startup Cost Forecast
The financial model input assumptions tab will include general assumptions and startup costs like your fixed assets like buildings, equipment, leasehold improvements and vehicles. On the input assumptions tab you will also be able to include startup cost assumptions like initial inventory.
12 Month Revenue Forecast Example
Our revenue assumptions tab will allow you to forecast your number of customers, the products or services they purchase, the purchase price and the percentage of total units sold represented by each product. You can see a quick example of our revenue model below:
Startup Operating Expense Projections Example
You can enter in your operating expense projections for your startup in the table below. It will allow you to add expenses as a fixed monthly expense or a percentage of revenue.
Startup Salary Forecasting Example
The last input tab is our salary forecast assumptions. You can set a salary, employer taxes, benefits, the month the employee starts and ends, and the number of the particular employee.
Projection Template Output Examples
Our free financial model spreadsheet will produce 12 months of income statement, cash flow and balance sheet projections. You can see examples of each of these outputs below along with some of the basic charts and graphs that will be included.
Example of a 12 Month Pro Forma P&L
Below you will see an example of our income statement pro forma output.
Cash Flow Forecast 12 Month Example
Next you will see an example of our cash flow forecast output with cash from operating activities, financing and investing activities.
Balance Sheet Forecast Example for 12 Months
The balance sheet forecast output will include 12 months of forecasted assets and liabilities as seen below:
Pro Forma Graphs
Finally, our free template includes a profit and loss at a glance, a monthly sales forecast and graph to display monthly sales, gross profit and net income.
If you are needing a more tailored template to your industry as well as 5 years of projections, we have 100+ different industry templates to choose from as well:
Examples: Restaurant, Trucking, SaaS, Airbnb, Brewery, Dentist, etc.
Check out our Highly Rated Financial Projection Templates
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SCORE offers free business mentoring to anyone that wants to start, currently owns, or is planning to close or sell a small business. To initiate the process, input your zip code in the designated area below. Then, complete the mentoring request form on the following page, including as much information as possible about your business. This information is used to match you with a mentor in your area. After submitting the request, you will receive an email from your mentor to arrange your first mentoring session.
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How to Create a Profit and Loss Statement in Excel
By Andy Marker | April 6, 2022
Creating a profit and loss statement can be daunting, but using a template can help simplify the process. We’ve created a step-by-step guide for creating a small business profit and loss statement with Microsoft Excel.
Included on this page, you’ll find step-by-step instructions for creating a profit and loss statement in Excel, pro tips for customizing your template , and free profit and loss templates for small businesses , including a 12-month statement template .
How to Build a Profit and Loss Statement in Microsoft Excel
Our tutorial breaks down the process of creating a profit and loss statement in Excel for small businesses into three easy steps, so you can get started using our customizable templates.
We’ve included instructions for customizing your template using basic Excel formulas. For additional resources and tutorials, see our guide to writing a general profit and loss statement .
Pam Prior, creator of Profit Concierge™ , says that when creating a profit and loss statement (P&L) for a small business, “use categories that work for your business and make sense to you.” Our template helps you understand the basic income statement format, so you can tailor your profit and loss statements to meet the specific needs of your small business.
“The whole point of doing a profit and loss statement is seeing it in context,” says Prior. “You want to have a column for each month because then you can see the story of what happens over time, and that’s when the numbers become useful to you. The value of Excel is that you can input and see 12 months clearly in the columns. The only Excel you need to know is plus and minus.”
Once you learn how to create a report for a 1-month period using our template instructions below, you can easily compile reports and create a 12-month statement. By doing so, you will be able to see trends and create forecasts for your business. Plus, we’ve added instructions for customizing statements for your business in Excel.
View and download our complete range of free profit and loss templates to find the most suitable, fully customizable templates for your business. For more template options with a small business focus, see our free small business profit and loss statement templates .
Before getting started, make sure you have your credit card and bank account statements on hand. This tutorial uses a monthly reporting period, but you can apply these instructions to quarterly or annual reporting structures.
1. Download, Open, and Save the Excel Template
- Download and open the free small business profit and loss statement template for Excel. The template should automatically open in Excel.
Download Free Small Business Profit & Loss Template — Microsoft Excel
Pro Tip: Determine a consistent file naming system so that you can easily locate and retrieve any statement. Include the reporting end date in the title of your document. For example: Business Name_P&LStatement_Feb22
Input Your Company and Statement Dates
2. Calculate Gross Profit
In order to calculate gross profit, you first need to calculate your gross revenue, or total income, and the total cost of goods sold (COGS). Subtract total goods sold from your gross revenue to determine gross profit:
Gross profit = Gross revenue - COGS
This template has built-in formulas that compute these calculations automatically as you enter information into the relevant sections.
Input Sales Revenue to Calculate Gross Revenue
Input the Cost of Goods Sold (COGS)
Calculate the Net Income
This template uses the following formula to calculate net income:
Net income = Gross profit - total expenses
Input Your Business Expenses
By following the steps in this section, you will learn how to input the expenses incurred for the reporting period and how to customize the template for your business by adding and deleting expense rows. Before you start, you may want to calculate your expenses in one location using our free small business expense templates .
Customize Your Expense Categories
After you complete the profit and loss template and record your net income for this period, create expense categories that make the most sense to you with this easy-to-customize template. The following tips will help you with the most common template adjustments:
- Renaming an Expense Without Adjusting Cells: Click on the title cell you wish to rename. Type in your desired category title, and either press Return or click on the next cell. Delete any expense category title without adjusting cells by clicking on the title and pressing Delete to leave the row blank.
- Adjusting Expense Cells: To customize expenses and match the exact number of categories, you can add or delete a line item as needed.
- Adding New Expense Row Cells
- Deleting Expense Row Cells
How to Maintain a Profit and Loss Account in Excel
Maintaining a profit and loss account in Excel allows you to make informed business decisions that improve your chances of profitability over time. Keep an extended record of each reporting period by creating a column for each month or quarter.
Statement maintenance is crucial to monitoring finance trends over time. Use Excel to maintain, forecast, and strategize by putting the profit and loss figures for multiple reporting periods under one column.
“A forecast is simply taking the last few months from the profit and loss statement to look into the future to make informed decisions,” says Prior. “Then you can make those informed decisions in two contexts. First, look at the actuals over time to forecast into the future, and second, see how your business did that month versus what you expected to happen. This helps you truly understand what’s driving your business.” Prior explains that the entire exercise takes only 10-15 minutes and can help make your small business profitable. “If you do this exercise faithfully for three or four months, you will make money in your business.”
Below are additional tips for creating a successful maintenance system for income statements:
- Organizing: A solid organizational system is crucial to success. Save individual Excel files for each reporting period over the fiscal year within a folder.
- Expanding: As your business grows, your reporting system should follow suit. Keep one year’s profit and loss statements in a single Excel file and create multiple tabs for individual reporting periods. You can design your own annual report by creating monthly columns, or use one of our free 12-month profit and loss templates.
- Visualizing: Data visualization is a helpful tool for reviewing financial information and recognizing trends. After calculating your profit margins, create graphs that represent changes in data over time.
- Budgeting: In order to grow a profitable business, it is necessary to craft a budget. Use your profit and loss statement when developing your budget with our free small business budget templates .
- Bookkeeping: Consistent reporting is key for successful financial reporting. Prior recommends using a bookkeeping system: “Once you hire a bookkeeper, then you don’t have to hand-key into Excel each month.”
12-Month Profit and Loss Statement Excel Templates
Once you have completed the monthly template using our instructions, input the data directly into an Excel spreadsheet or accounting software. View your business’s finances in the context of historical data and maintain your profit and loss statement over the fiscal year.
Basic 12-Month Profit and Loss Statement Excel Template
Download Basic 12-Month Profit and Loss Statement Template — Microsoft Excel
This basic profit and loss statement template records finances over the course of 12 reporting periods. Track your revenue, cost of goods sold, and expenses to calculate the gross profit and net income for your small business over 12 months. Review your data and make informed financial decisions for your company’s future.
Detailed 12-Month Profit and Loss Statement Excel Template
Download Detailed 12-Month Profit and Loss Statement Template — Microsoft Excel
Track your small business expenses in detail over the course of a year. This free template includes individual columns for customizing your revenue and expenses. Itemize categories in this easy-to-use template with built-in formulas that calculate your business revenue, cost of goods sold, expenses, gross profit, and net income. Compare each month’s finances in the context of a full year to improve your financial strategy.
Once you have profit and loss data for several years, you can use our free, customizable three-year profit and loss statement template. For more resources, view our selection of free business plan financial templates to build and maintain a comprehensive financial data system for your small business.
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5-Year Financial Plan Template
Whether you are already running a business, or making plans to start one up, financial planning is a vital part of ensuring your success. Not knowing your expected income and expenditure will make it difficult to plan, and hard to find investors.
This 5-Year Financial Plan spreadsheet will make it easy for you to calculate profit and loss, view your balance sheet and cash flow projections, as well as calculate any loan payments you may have. Whilst the wording on this spreadsheet is focussed around products, it can just as easily be used for businesses who largely provide services to their customers.
5-Year Financial Plan Projection
How to use Financial Plan
Use the Model Inputs sheet to enter information about your business that will be used to model results seen on the other pages.
The forecasted revenue section allows you to estimate your revenue for 4 different products. Simply use the white boxes to enter the number of units you expect to sell, and the price you expect to sell them for, and the spreadsheet will calculate the total revenue for each product for the year. If you want to give your products names, simply type over the words "Product 1", "Product 2" etc. and these names will be carried through to the rest of the spreadsheet.
Cost of Goods Sold
Your margins are unlikely to be the same on all of your products, so the cost of goods sold allows you to enter your expected gross margin for each product into the white boxes in Column B. The spreadsheet will automatically calculate the annual cost of goods sold based on this information, along with your forecasted revenue.
Annual Maintenance, Repair and Overhaul
As the cost of annual maintenance, repair and overhaul is likely to increase each year, you will need to enter a percentage factor on your capital equipment in the white box in Column B. This will be used to calculate your operating expenses in the profit and loss sheet.
Use the white box to enter the number of years you expect your assets to depreciate over. This may vary greatly from business to business, as assets in some sectors depreciate much more quickly than they do in others.
In most parts of the world, you will have to pay income on your earnings. Enter the annual tax rate that applies to your circumstances in the white box in Column B. If you have to pay any other taxes, these can be entered later on the Profit and Loss sheet.
Although you cannot be certain of the level of inflation, you will still need to try and plan for it when coming up with a 5-year financial plan. The International Monetary Fund provide forecasts for a number of countries, so is a good place to look if you are unsure what to enter here. Simply enter your inflation rate in the white box.
Product Price Increase
As a consumer, you are no doubt aware that the price of products goes up over time. Enter a number in the white box to show the expected annual price increase of your products to enable the spreadsheet to calculate income in future years. If you are unsure what to put here, increasing your product price in line with inflation is a good starting point. If your business is just starting out, you may be able to command higher prices for your products or services as the years go on, as you build up brand recognition and a good reputation.
The funding section allows you to enter information about your business loan. To use this section, simply fill in the three white boxes representing the amount of the loan, the annual interest rate and the term of the loan in months - for example, 12 for 1 year, 24 for 2 years, 36 for 3 years, 48 for 4 years, or 60 for a 5 year loan.
Profit and loss
This sheet calculates your profit and loss for each year over a 5 year period. The profit and loss assumptions, along with income, are automatically calculated using information entered in the model inputs sheet.
You may have, or be expecting some income in addition to your operating income. These can be entered manually in the white cells in Column B for Year 1, Column C for Year 2 and so on. There are pre-entered categories for rental, lost income and loss (or gain) on the sale of assets, as well as an additional row where you can enter your own non-operation income.
Some parts of this are already filled in based on information you put on the Model Inputs, for example, depreciation, maintenance and interest on long-term debt. Years 2-5 are also filled in for you across all categories based on the inflation information entered in the Model Inputs sheet. You therefore only need to enter your Sales and Marketing, Insurance, Payroll and Payroll Tax, Property Taxes, Utilities, Administration Fees and any Other Expenses into the white cells in Column B for Year 1.
This section is for entering any expenses that you will not be paying on an annual basis. The Unexpected Expenses row allows you to enter a contingency for unexpected expenses, whilst the Other Expenses row allows you to enter any other one off expenses you may be expecting to make, for example the purchase of new equipment part way into your 5 year plan.
Income Tax is filled in based on the information you enter into the model inputs. Depending on where your business is based, you may find yourself having to pay other taxes. These can be entered in the Other Tax row. You can rename this row by typing over the "Other Tax (specify)" text.
The annual balances for Years 1-5 are, in most cases, filled in for you, based on the information you have entered on the Model Inputs sheet and in the Initial Balance column of the Balance Sheet column itself. This makes it very easy to use.
This is where you can enter the value of any of your current assets, with spaces to enter information about Cash and Short-term Investments, Accounts Receivable, Inventory, Prepaid Expenses and Deferred Income Tax. At the bottom of this section is a space for you to enter any other current assets you may have that do not fall into any of these categories.
Property and Equipment
Depending on the nature of your business, you may have assets such as Buildings, Land, Capital Improvements and Machinery. Enter the value of these assets into Column B, and these values will be copied over to each of the 5 years of the plan. The depreciation information entered into the Model Inputs sheet will be used to calculate the depreciation expenses, which allows a total for property and equipment to be calculated automatically.
This section is for entering information on any assets that don't fit in the other sections. These could be Goodwill Payments, Deferred Income Tax, Long-term Investments, Deposits, or any Other long-term assets. Enter the information into Column B, and it will be carried across to the yearly columns automatically.
As well as assets, your business is likely to have liabilities. There are spaces to enter Accounts Payable, Accrued Expenses, Notes Payable and Short-term Debt, Capital Leases and Other current liabilities. Just leave blank any rows where you do not have any liabilities, and the totals will be calculated for you.
Your long-term debt/loan information will have already been entered in the Model Inputs sheet, so the only thing to do here is to enter any other long-term debt. Unlike much of the rest of the Balance Sheet, you can manually enter different amounts for each year, as you may, for example, be expecting to take on another loan to purchase some new equipment in Year 3 as your business expands.
Use this section to enter any liabilities not covered by the pre-defined labels. You can amend the text in Column A, in order to specify the liabilities, and then enter the cost of these liabilities in Column B.
Your business is likely to have some equity, and this can be entered into this section. You can fill out the Owner's Equity, Paid-in Capital and Preferred Equity in Column B. Your retained earnings are automatically calculated based on the Profit and Loss sheet.
Much of the information on the cash flow sheet is based on calculations in the Balance Sheet. It is important to plan your cash flow carefully, so that you know what funds you will have available to buy new stock and equipment.
Much of this section is automatically filled in based on your balance sheet. There are only three rows to fill out, which are Amortization, Other Liabilities and Other Operating Cash Flow. You only need to fill out the white boxes in Column B for Year 1, as these values will automatically be carried over into subsequent years for you.
Your capital expenditures and sale of fixed assets will be automatically populated if you have filled out the relevant sections of the Balance Sheet. They will be blank if they do not apply. As investing activities can vary year on year, you will need to fill out any investment activities for each of the 5 years in the appropriate columns for Acquisition of Business, and any Other Investing Cash Flow items.
The long-term debt/financing row will be pre-filled based on the loan information previously entered. Use Column B to fill out your Preferred Stock, Total Cash Dividends Paid, Common Stock and Other Financing Cash Flow items for Year 1. This information will automatically carried over to Years 2-5.
Loan Payment Calculator
There is nothing to enter on this sheet, as it is for information only. Whether or not you already have a loan, or are using this spreadsheet as a part of a business plan to help you obtain one, it allows you to easily see how much you will be paying each month, showing how much you are paying off your loan, and how much you are paying in interest. This will allow you to get an idea of whether or not you can afford to borrow a bit extra, if you feel it would allow you to push your business into higher places, or whether you need to shop around for a better interest rate or adjust the loan term in order to afford the loan payments.
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Business Plan Templates (40-Page MS Word + 10 Free Excel Spreadsheets)
Download this 40-page MS Word Business Plan template and 10 free Excel spreadsheets to write your next business plan. Includes sample guidelines and interactive spreadsheets.
Sections include Marketing Plan, Market Analysis, SWOT Analysis, Sales Forecast, Development Plan, Operational Plan, Financial Plan, 12-Month Profit & Loss, Projected Cash Flow, Balance Sheet, Break-Even Analysis, Personal Financial Statement, and Exit Strategy.
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Business Plan Template: Blue Theme
Business plan template: red theme.
You get two templates in the zip file. One blue theme, the other red. The red theme of the MS Word template has the exact same content as the blue theme. You can change the color scheme by updating the styles.
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12 Month Profit & Loss Projection
Projected Cash Flow
Business Plan: Free Excel Templates
Some of the Excel spreadsheets include a Balance Sheet, Break-even Analysis, Cash Flow, Competitive Analysis, General Demographic Profile, Personal Financial Statement, Profit and Loss Projections, and Sales Forecast.
Table of Contents
1 Executive Summary 2 Company Description 2.1 Mission Statement 2.2 History 2.3 Markets and Products 2.4 Objectives 2.5 Current Situation
3 Products and Services 3.1 Description of Products/Services 3.2 Production Process 3.3 Distribution/Service Delivery 3.4 New Products
4 Marketing Plan 4.1 Market Analysis 4.1.1 Research Findings 4.1.2 Growth Projections 4.2 Market Trends 4.3 Product 4.4 Customer Demographics 4.5 Competition 4.6 SWOT Analysis 4.7 Marketing Strategy 4.7.1 Positioning 4.7.2 Promotion 4.8 Price Comparison 4.9 Customer Service Plans 4.9.1 Retaining Customers 4.9.2 Customer Complaint Handling 4.10 Sales Forecast
5 Development Plan 5.1 Current Status 5.2 Development Plans 5.3 Development Timetable 5.4 Development Risks
6 Operational Plan 6.1 Current Premises 6.2 Current Premises Financial Details 6.3 Equipment, Vehicles & Fittings 6.4 Insurance Details 6.5 Production 6.6 Future Location 6.7 Legal Environment 6.8 Personnel 6.9 Inventory 6.10 Suppliers
7 Management and Organization 7.1 Professional and Advisory Support 7.2 Key People Details 7.2.1 Key Person 7.2.2 Key Person 7.2.3 Total Salary Costs 7.2.4 Number of Employees
8 Personal Financial Statement 8.1 Methods of Bank Finance 8.2 Assets as Security 8.3 Repayment for Borrowings
9 Financial Plan 9.1 12-Month Profit and Loss Projection 9.2 Projected Cash Flow 9.3 Opening Day Balance Sheet 9.4 Break-Even Analysis 9.5 Exit Strategy
10 Appendices 10.1 Glossary of Terms
Business Plan Template: Contents & Format
The Business Case templates are in Microsoft Word and Excel format (.doc & .xls).
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File Format : The templates are in Microsoft Word (.docx) and Excel format (.xlsx).
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Profit and Loss Projection Worksheet
Predict your revenue, cost of operations and expenses on a monthly basis for a year with this printable projected profit and loss worksheet.
Sample text from Profit and Loss Projection Worksheet:
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6+ SAMPLE Profit and Loss Projection in PDF | MS Excel
Profit and loss projection | ms excel, 6+ sample profit and loss projection, what is a profit and loss projection, main elements of a profit and loss projection, what are the types of profit and loss statements, what are the advantages of making a profit, how to create a profit and loss projection, what is gross profit, what is the importance of having a profit and loss statement, what is the cash method of profit and loss statement, is a balance sheet different from a profit and loss statement.
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Profit and Loss Statement Projection
- Revenue – this component of the profit and loss projection indicates the accounting period’s net sales or revenues. It also covers money produced from the entity’s principal business activity as well as non-operating revenue.
- Cost of Goods Sold – this component breaks down all the costs of the goods and services.
- Gross Profit – this component, also identified as a gross income or gross margin, refers to the net revenue of the business, not including the costs of sales.
- Operational Expenses – this component refers to the administrative, general, and selling costs associated with running a firm for a set period of time. This covers leasing costs, wages, electricity, and any other costs associated with running a business. Non-cash expenditures such as depreciation are also included.
- Operating Income – what is operating income? well, everything you’ve earned before tax deductions, depreciation, interest, and authorization can also be referred to as your company’s operating income. In order to determine the operating income of your company, simply subtract your opening expenses from the gross profit.
- Miscellaneous Expenses and Income – this component of the profit and loss projection often comprises of income and costs that are not connected to routine activities (hence the term miscellaneous) such as any profits and losses made from selling long term assets, interest and dividend income from various investments , and other uncommon expenses and revenues.
- Net Profit – this part of the profit and loss projection refers to the entire amount earned after all expenditures have been deducted. In order to determine your company’s net profit, simply subtract your total expenses from your gross earnings.
1. Get an Estimate of Your Future Revenue
2. get an estimate of your variable costs, 3. get an estimate of your gross profit, 4. calculate your net profit, share this post on your network, you may also like these articles, 50+ sample variance in pdf | ms word.
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