How the Income Statement appears in the Business Plan

1.   -  THE FORECASTED INCOME STATEMENT

The first statement appearing in the financial plan is your Forecasted Income Statement. An Income Statement is a financial tool used to determine whether a company earned a profit or incurred a loss within a given time frame. An income statement is developed by listing all revenues (sales) within a specific time frame, listing all expenses within the same time frame and subtracting the expenses from the revenues to arrive at Earnings Before Taxes (EBT) for that time frame. Income taxes are then calculated and subtracted from earnings before taxes to arrive at a company's Net Income after taxes or what many people refer to as - THE BOTTOM LINE.

If you plan to open a new business or plan on expanding an existing one, you will not have actual revenues or expenses. In this case, you will be required to anticipate (forecast) revenues and expenses over a one year period, for a minimum of three years. In other words, you will have to construct what is known as an annual forecasted income statement for three years. The forecasted Income statement will show investors such as banks, governments, and private entities if and when your business plans to make a profit.

The forecasted income statements for three years should appear on One Page. Moreover, the one page will consist of three columns - one column for your first year forecasted income statement, one column for the second year forecasted income statement, and one column for your third year forecasted income statement. Below provides an example of how your forecasted income statements should appear.

 

J&B INCORPORATED
FORECASTED INCOME STATEMENT
FOR YEARS ENDING...
  Ending
April
200X *		 Ending
April
200Y		 Ending
April
200Z
Total Revenue from Sales (note 1) $582,401 $673,775 $784,411
Cost of Goods Sold (note 2) $130,191 $146,378 $152,846
GROSS MARGIN ** $452,210 $527,397 $631,566
     
OPERATING EXPENSES:
Advertising Expense (note 3) $130,000 $150,000 $170,000
Wages & Benefits (note 4) $122,366 $136,153 $167,421
Casual Labor (note 5) $ 2,400 $ 3,000 $ 3,600
Office Supplies (note 6) $ 1,500 $ 1,715 $ 1,908
Rent Expense (note 7) $ 12,000 $ 12,600 $ 13,230
Telephone/Fax Expense (note 8) $ 3,600 $ 3,840 $ 4,080
Professional Services (note 9) $ 7,000 $ 3,500 $ 4,000
Insurance Expenses (note 10) $ 1,500 $ 1,650 $ 1,815
Toll-free Charges above Variable Cost (note 11) $ 15,685 $ 20,706 $ 25,408
Bad Debt Expense (note 12) $ 5,824 $ 6,738 $ 7,844
Interest on Operating Loan (note 13) $ 2,000 $ nil $ nil
Internet Storage & Accounts Expense (note 14) $ 2,550 $ 2,700 $ 2,865
Miscellaneous Expenses (note 15) $ 2,400 $ 2,600 $ 2,800
Depreciation Exp. - Equipment (note 16) $ 3,142 $ 4,392 $ 6,392
Depreciation Exp. - Furniture (note 17) $ 606 $ 906 $ 1,306
Amortization of Initial Development Costs (note 18) $ 15,924 $ 15,924 $ 15,924
Amortization of Future Development Costs (note 19) $ 24,720 $ 55,215 $ 86,575
TOTAL OPERATING EXPENSES ** $353,218 $421,638 $515,168
       
Net Income Before Taxes $ 98,992 $105,759 $116,397
Less: Taxes (note 20) $ 29,698 $ 31,728 $ 34,919
 
NET INCOME AFTER TAXES $ 69,294 $ 74,032 $ 81,478

* Ending April 200X refers to J&B's forecasted revenues and expenses from April 200W to April 200X. It does not however, include the expected expenses incurred during the product's five month development phase. For further information regarding the Company's Initial Development Costs, please refer to NOTE 18.
** Numbers are rounded

 

Notice after each account item that a note and a number is stated. These numbers refer to the "Notes to the Financial Statements" and allow readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".

Also, notice J&B's three year Forecasted Income Statement is one page in length. The revenue and expense "items" are listed on the left hand side, while each year's forecasted revenues and expenses ("values") are shown in a column to the right. Your forecasted income statement for a three year period should appear in a similar fashion. Moreover, it is more professional and investors can compare your expected revenue and expense projections from year to year.

This concludes our discussion on how your forecasted income statements should appear in your Financial Plan. Remember it is imperative to understand the theory behind the income statement before attempting to forecast your own. To learn more about this statement, please refer to the section entitled "The Income Statement". When you understand the theory behind each financial statement and analysis, you will be equipped with the necessary tools needed to Forecast Your Own Forecasted Financial Statements.

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