Financial Plan: Income Statement

Your financial plan will consist of many important figures compiled in sheets, with the Income Statement, Cash Flow Projection, and Balance Sheet being the most important. Each form will provide investors, the bank, or your internal financial team, an overall look at the health of your business. Now you can see why accounting is so crucial and they make so much money! Small mistakes or adjustments in the expenses of a firm can ripple through and cause huge losses. I suggest using Excel in the beginning. Quickbooks is another great program but excel will help you think through the steps more and see how crucial financial decision making is to the overall operation and profitability of your business. 

When you first start your business, the income statement helps to also help in determining what your break-even point must be (where profit - expenses = zero). While you may not be profitable for a year or so, you need to know how much of your product or service must be sold to keep your doors open.

Income Statement: This form shows whether or not you are profitable and details the sources of your income. Using the method of your choice to project your actual sales (Abrams Method, Modified Exponential Method) for 5 years helps you really get a clear picture of your capital requirements. A snapshot for your financial condition will be detailed with the following information:

INCOME

• Net Sales = Gross Sales - commissions, returns and allowances
• Gross Profit = Net Sales - COG's (Cost of Goods) 

EXPENSES

• Salaries & Wages
• Employee Benefits
• Payroll Taxes
• Professional Services (Outsourced functions you pay)
• Marketing & Advertising (Budgetary costs plus ongoing costs)
• Rent or Lease for Property
• Equipment Rental
• Maintenance
• Depreciation (This is based on how you choose to amortize your equipment)
• Insurances
• Telephone Services, Internet, etc
• Utilities
• Office Supplies
• Interest on Loans (Notes Payable)
• Parking Costs
• Principle on Loans

There may be other industry-specific expenses, so you will need to record all of them. Remember that for this sheet, use annual expenses for up to 5 years.

Net Profit = Your total expenses - net income before taxes - provision for taxes on income

Your Net Profit is the most important figure on this sheet. It is the bottom line and takes in account everything you have earned and everything you must pay. 

How does the financial planning of your business help you in determining the price?

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