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Comprehensive Guide to Projected Income Statements: Forecasting Your Financial Future

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Ralph Carnicer, CPA

February 28, 2024

Projected income statements are the crystal ball through which businesses peer into their financial future, envisioning the rewards and challenges that lie ahead. Picture them as a weather forecast, offering insights into the economic climate businesses are about to traverse.

Much like a meteorologist interprets weather patterns to predict storms and sunshine, entrepreneurs analyze projected income statements to forecast revenues, expenses, and ultimately, profitability. Mastering the art of interpreting these statements is akin to becoming a skilled navigator, steering the ship of enterprise towards safe harbors amidst turbulent seas.

What is an Income Statement, and Why is it Important for Projection?

An income statement is like a report card for a company. It shows how much money the company made and spent over a certain time, like a year. This report helps us see if the company is doing well or if it's spending too much. When we guess how a company will do in the future, we use this report to make smart guesses.

This is important because it helps companies plan ahead and make sure they have enough money for things they want to do or need to fix.

Understanding the Basics of an Income Statement

Imagine if you kept track of your allowance and what you spent it on. An income statement does that for a company. It lists all the company's money from selling things or providing services.

Then, it subtracts what it costs to make these goods or services, like materials and paying workers. What's left tells us if the company made a profit or lost money. This is a basic check-up on the company's health.

Key Components of an Income Statement to Consider for Forecasting

When guessing a company's future money, we look at certain parts of the income statement:

• Sales and Revenue : This is how much money the company makes.
• COGS (Cost of Goods Sold) : What it costs to make their products.
• SG&A (Selling, General & Administrative Expenses) : Money spent on running the company, like office supplies or paying managers.
• R&D (Research and Development) : Money used to create or improve new products.
• Taxes : How much money goes to the government.

We also look at how these numbers have changed over time to make smart guesses about the future.

Further Reading: How To Forecast Cash Flow

How Does an Income Statement Contribute to Projecting Financial Future?

An income statement helps predict a company's money future by showing trends. For example, if sales are going up each year, we might guess they will keep rising. We use ratios, like how much of the sales money is left after paying expenses, to see how efficiently the company uses its money.

This, along with looking at other reports like the balance sheet and cash flow statement, helps us forecast future money and decide if the company's business model is good for making more money in the future.

How to Project Income Statements for Businesses or Individuals?

Projecting an income statement is like making a smart guess about how much money a business or person will make and spend in the future. It's a bit like planning your allowance or budget for the next few months. You think about what you'll earn from chores or gifts and what you'll need to spend on things like toys or saving for something big. For businesses, this helps them plan and make decisions about spending, saving, or investing money.

Steps to Prepare a Projected Income Statement

• Estimate Revenue : Think about how much money will come in. For a lemonade stand, it's how many cups of lemonade you think you'll sell and at what price.
• Calculate Expenses : List what you need to spend money on, like lemons and sugar for the lemonade stand.
• Figure Out Gross Profit : Subtract the cost of making your product (like the lemons and sugar) from your sales. This tells you how much you've made after covering these basic costs.
• Consider Operating Expenses : These are other costs, like paying for help or ads to tell people about your lemonade stand.
• Calculate Operating Income : This is what's left after all expenses. It shows if your plan is likely to make money.
• Account for Taxes and Other Costs : Think about things like tax expense or money you need to set aside for future needs.
• Find the Bottom Line : This is your final profit, what you keep after everything.

Further Reading: How To Analyze Cost Volume Profit

Utilizing Templates for Projecting Income Statements

Templates are like a guide or a map for making your projected income statement. They have spots for all the things you need to include, like revenue, expenses, and profits. Using a template makes it easier because you just fill in your numbers. It's like having a recipe for a cake, where you just add your ingredients according to the steps given.

Factors to Consider When Forecasting Income Statement

When guessing your future money:

• Operate Wisely : Think about how you run things day-to-day. Will you sell more lemonade by being in a busy park?
• Revenue and Expenses : Be realistic about money coming in and going out. Don't forget small costs—they add up.
• Gross Profit : This shows if your basic idea makes money before other costs.
• Operating Income : After all expenses, is there money left? This tells you if the plan works overall.
• Depreciation : If you bought something big, like a fancy lemonade stand, it loses value over time. Remember this in your plan.
• Tax Expense : Set aside money for taxes based on your profit.
• Finance and Accounting Period : Think about the time frame for your plan. Is it for a summer, a year?

By taking these steps and considering these factors, you can make a good guess about future money, helping you plan better and make smart decisions.

What Are the Common Challenges Faced in Projecting Income Statements?

When trying to figure out how much money a business might make and spend in the future, there are some tricky parts. Imagine you're planning how much money you'll have after saving from your allowance.

But, instead of just saving , you also have to think about unexpected things, like if you might spend more some weeks or make less money. For businesses, it's similar but with bigger numbers and more complicated stuff like paying for equipment or guessing how many people will buy their products.

Dealing with Variable Expenses in Forecasting

Variable expenses change based on how much a business does. Think of it like this: if you have a lemonade stand, you spend more on lemons and sugar when you sell more lemonade. These costs go up and down, making it hard to guess how much you'll spend.

Businesses face this challenge by trying to predict how much they'll sell and how that changes what they spend on things like materials or even how much they pay for using machines (machinery).

Addressing Uncertainties in Sales Revenue Projections

Guessing how much money you'll make from sales is tough. It's like trying to predict how many people will buy lemonade from you each day. You might think you'll sell a lot because it's hot outside, but what if it rains? Companies face this challenge by looking at past sales and trying to figure out future trends. But it's still a guess, and surprises can happen, like new trends or unexpected events that change how much people buy.

Managing the Impact of Operating Expenses on Income Statement Forecasts

Operating expenses are the costs of running a business day-to-day, like rent for the space or money spent on advertising. These costs can eat into the money the business makes. It's like if you had to pay your sibling to help sell lemonade; that's less money for you in the end. Businesses have to plan for these costs carefully to make sure they still make a profit. They also have to think about long-term costs, like buying new equipment (capital expenditures) or paying off loans ( debt ), which can affect how much money they have left over (net).

When planning for the future, businesses face challenges like changing costs, unexpected changes in sales, and making sure they have enough money to cover all their expenses. It's a bit like planning a big project with your allowance, where you have to think about all the things that could change and how you'll deal with them.

Further Reading: Why You Need To Learn About Bad Debt Expense

Key terms to Remember:

• Projected Income Statement : A guess of how much money a business will make and spend in the future. It's like a plan for a company's money.
• Revenue : The money a business makes from selling things, like how much you earn from selling lemonade.
• Expenses : The money a business spends to make and sell products, like buying lemons and sugar for your lemonade stand.
• Variable Expenses : Costs that change when a business sells more or less, similar to buying more lemons when you sell more lemonade.
• Gross Profit : The money left after subtracting the cost of making the product from sales. It's like what you have after paying for lemons and sugar.
• Operating Expenses : The daily costs of running a business, such as rent or paying employees, much like paying a friend to help sell lemonade.
• Net Income : The money a business keeps after paying all expenses. Imagine keeping some money after all your lemonade stand costs.
• Capital Expenditures : Big purchases a business makes, like machines or buildings, similar to buying a big, fancy stand for your lemonade business.
• Debt : Money that a business owes to others, like if you borrowed money to start your lemonade stand.
• Equity : The value of everything a business owns after paying off its debts. It's like if you sell your lemonade stand and pay back borrowed money, what you have left is yours.

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Financial forecast example for new businesses and startups

The financial forecast is an essential step when creating a business plan. The financial forecast allows you to anticipate the revenues and expenses of your new business over a given period.

Even if the exercise is sometimes delicate to carry out, it is nevertheless essential for any entrepreneur. Indeed, it allows you to define quantified objectives, which, if meticulously tracked, will allow you to grow your business in good conditions.

To help you, here's a financial forecast example as well as tools you can use to create yours. 

Financial forecast examples for new businesses

Example of a sales forecast.

The sales forecast is used to estimate the company's turnover. It is generally presented by category of products and services, types of customers, or time slots.

In our financial forecast example, we have included below a sales forecast for a hostel, organised by categories of services with the bed's occupancy forecast broken down based on seasonality:

To ensure a fair and realistic evaluation of your company's revenues, You will need to base your forecast on thorough and reliable market analysis, including an analysis of what your competition offers. You will also need to think carefully about your pricing policy and distribution strategy beforehand.

Examples of financial statements to include in your forecast

Your forecast will need to include 3 financial statements:

• The P&L statement
• The cash flow statement
• The balance sheet

P&L statement

The profit and loss statement enables you to assess:

• the growth of the company by analyzing the evolution of the turnover over several years;
• the profitability of the company by looking at the difference between the expected revenues and the costs which will need to be incurred to generate these sales.

The main shortcoming of the projected income statement is that it does not take into account cash flows. Your profits should turn into cash at some point, but based on when your clients pay you, how much inventory you keep, or when you pay your suppliers, the cash flow could be very different from your profit.

To overcome this shortcoming, we need to look at the forecasted cash flow statement included in our financial forecast example.

Cash flow statement

The cash flow statement shows all anticipated cash movements for a given year.

It enables you to evaluate:

• the ability to generate operating cash flow;
• the company's investment and financing policies.

The cash flow statement is highly complementary to the P&L statement. Together they provide a clear view of the company's profitability, the cash generated by the operations, the investments made and the financing flows.

Balance sheet

The forecasted balance sheet, the last link in the chain, provides an overview of the company's net worth at a given moment in time and is part of our financial forecast example. It enables you to evaluate:

• the value of the company's assets;
• the weight of its working capital;
• the level of financial indebtedness;
• the book value of shareholders' equity.

The forecasted balance sheet complements the other two tables. Nevertheless, it has two weak points:

• It provides a snapshot of the company's net worth at a specific moment in time - giving a very static view of the company. Especially given the balance sheet is usually produced several months after the end of the financial year (and therefore the information it contains is already stale!)
• It gives an accounting vision of the company, based on historical cost, and not a financial vision, based on market value.

Where can I find other financial forecast examples?

At The Business Plan Shop, we offer an online software that includes a financial forecasting tool and helps you throughout the drafting of the business plan on top of financial forecast examples included in our business plan templates . 

Using a software like ours to realize your business plan has several advantages:

• You can easily create your financial forecast by letting the software take care of the calculations and financial aspects for you.
• You are guided in the drafting process by detailed instructions and examples for each part of the plan.
• You get a professional document, formatted and ready to be sent to your bank or investors.

If you are interested in our solution, you can try our software for free here .

Our article is coming to an end. We hope that our financial forecast example has given you a better understanding of what this exercise is all about.

The forecast is a crucial element of a business plan that will be of particular interest to your financial partners if you are looking for financing; but don't forget that it is also a mean for you, as an entrepreneur, to evaluate the viability of your new business idea.

Also on The Business Plan Shop

• How to do financial projections for a new business?
• How to establish a Profit & Loss forecast in your business plan?
• How to do a financial forecast for a restaurant?

Founder & CEO at The Business Plan Shop Ltd

Guillaume Le Brouster is a seasoned entrepreneur and financier.

Guillaume has been an entrepreneur for more than a decade and has first-hand experience of starting, running, and growing a successful business.

Prior to being a business owner, Guillaume worked in investment banking and private equity, where he spent most of his time creating complex financial forecasts, writing business plans, and analysing financial statements to make financing and investment decisions.

Guillaume holds a Master's Degree in Finance from ESCP Business School and a Bachelor of Science in Business & Management from Paris Dauphine University.

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• Building Your Business

How To Create Financial Projections for Your Business

Learn how to anticipate your business’s financial performance

• Understanding Financial Projections & Forecasting

Why Forecasting Is Critical for Your Business

Key financial statements for forecasting, how to create your financial projections, frequently asked questions (faqs).

Maskot / Getty Images

Just like a weather forecast lets you know that wearing closed-toe shoes will be important for that afternoon downpour later, a good financial forecast allows you to better anticipate financial highs and lows for your business.

Neglecting to compile financial projections for your business may signal to investors that you’re unprepared for the future, which may cause you to lose out on funding opportunities.

Read on to learn more about financial projections, how to compile and use them in a business plan, and why they can be crucial for every business owner.

Key Takeaways

• Financial forecasting is a projection of your business's future revenues and expenses based on comparative data analysis, industry research, and more.
• Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts, which can be attractive to investors.
• Some of the key components to include in a financial projection include a sales projection, break-even analysis, and pro forma balance sheet and income statement.
• A financial projection can not only attract investors, but helps business owners anticipate fixed costs, find a break-even point, and prepare for the unexpected.

Understanding Financial Projections and Forecasting

Financial forecasting is an educated estimate of future revenues and expenses that involves comparative analysis to get a snapshot of what could happen in your business’s future.

This process helps in making predictions about future business performance based on current financial information, industry trends, and economic conditions. Financial forecasting also helps businesses make decisions about investments, financing sources, inventory management, cost control strategies, and even whether to move into another market.

Developing both short- and mid-term projections is usually necessary to help you determine immediate production and personnel needs as well as future resource requirements for raw materials, equipment, and machinery.

Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts. They can also be used to make informed decisions about the business’s plans. Creating an accurate, adaptive financial projection for your business offers many benefits, including:

• Attracting investors and convincing them to fund your business
• Anticipating problems before they arise
• Visualizing your small-business objectives and budgets
• Demonstrating how you will repay small-business loans
• Planning for more significant business expenses
• Showing business growth potential
• Helping with proper pricing and production planning

Financial forecasting is essentially predicting the revenue and expenses for a business venture. Whether your business is new or established, forecasting can play a vital role in helping you plan for the future and budget your funds.

Creating financial projections may be a necessary exercise for many businesses, particularly those that do not have sufficient cash flow or need to rely on customer credit to maintain operations. Compiling financial information, knowing your market, and understanding what your potential investors are looking for can enable you to make intelligent decisions about your assets and resources.

The income statement, balance sheet, and statement of cash flow are three key financial reports needed for forecasting that can also provide analysts with crucial information about a business's financial health. Here is a closer look at each.

Income Statement

An income statement, also known as a profit and loss statement or P&L, is a financial document that provides an overview of an organization's revenues, expenses, and net income.

Balance Sheet

The balance sheet is a snapshot of the business's assets and liabilities at a certain point in time. Sometimes referred to as the “financial portrait” of a business, the balance sheet provides an overview of how much money the business has, what it owes, and its net worth.

The assets side of the balance sheet includes what the business owns as well as future ownership items. The other side of the sheet includes liabilities and equity, which represent what it owes or what others owe to the business.

A balance sheet that shows hypothetical calculations and future financial projections is also referred to as a “pro forma” balance sheet.

Cash Flow Statement

A cash flow statement monitors the business’s inflows and outflows—both cash and non-cash. Cash flow is the business’s projected earnings before interest, taxes, depreciation, and amortization ( EBITDA ) minus capital investments.

Here's how to compile your financial projections and fit the results into the three above statements.

A financial projections spreadsheet for your business should include these metrics and figures:

• Sales forecast
• Balance sheet
• Operating expenses
• Payroll expenses (if applicable)
• Amortization and depreciation
• Cash flow statement
• Income statement
• Cost of goods sold (COGS)
• Break-even analysis

Here are key steps to account for creating your financial projections.

Projecting Sales

The first step for a financial forecast starts with projecting your business’s sales, which are typically derived from past revenue as well as industry research. These projections allow businesses to understand what their risks are and how much they will need in terms of staffing, resources, and funding.

Sales forecasts also enable businesses to decide on important levels such as product variety, price points, and inventory capacity.

Income Statement Calculations

A projected income statement shows how much you expect in revenue and profit—as well as your estimated expenses and losses—over a specific time in the future. Like a standard income statement, elements on a projection include revenue, COGS, and expenses that you’ll calculate to determine figures such as the business’s gross profit margin and net income.

If you’re developing a hypothetical, or pro forma, income statement, you can use historical data from previous years’ income statements. You can also do a comparative analysis of two different income statement periods to come up with your figures.

Anticipate Fixed Costs

Fixed business costs are expenses that do not change based on the number of products sold. The best way to anticipate fixed business costs is to research your industry and prepare a budget using actual numbers from competitors in the industry. Anticipating fixed costs ensures your business doesn’t overpay for its needs and balances out its variable costs. A few examples of fixed business costs include:

• Rent or mortgage payments
• Operating expenses (also called selling, general and administrative expenses or SG&A)
• Utility bills
• Insurance premiums

Unfortunately, it might not be possible to predict accurately how much your fixed costs will change in a year due to variables such as inflation, property, and interest rates. It’s best to slightly overestimate fixed costs just in case you need to account for these potential fluctuations.

Find Your Break-Even Point

The break-even point (BEP) is the number at which a business has the same expenses as its revenue. In other words, it occurs when your operations generate enough revenue to cover all of your business’s costs and expenses. The BEP will differ depending on the type of business, market conditions, and other factors.

To find this number, you need to determine two things: your fixed costs and variable costs. Once you have these figures, you can find your BEP using this formula:

Break-even point = fixed expenses ➗ 1 – (variable expenses ➗ sales)

The BEP is an essential consideration for any projection because it is the point at which total revenue from a project equals total cost. This makes it the point of either profit or loss.

Plan for the Unexpected

It is necessary to have the proper financial safeguards in place to prepare for any unanticipated costs. A sudden vehicle repair, a leaky roof, or broken equipment can quickly derail your budget if you aren't prepared. Cash management is a financial management plan that ensures a business has enough cash on hand to maintain operations and meet short-term obligations.

To maintain cash reserves, you can apply for overdraft protection or an overdraft line of credit. Overdraft protection can be set up by a bank or credit card business and provides short-term loans if the account balance falls below zero. On the other hand, a line of credit is an agreement with a lending institution in which they provide you with an unsecured loan at any time until your balance reaches zero again.

How do you make financial projections for startups?

Financial projections for startups can be hard to complete. Historical financial data may not be available. Find someone with financial projections experience to give insight on risks and outcomes.

Consider business forecasting, too, which incorporates assumptions about the exponential growth of your business.

Startups can also benefit from using EBITDA to get a better look at potential cash flow.

What are the benefits associated with forecasting business finances?

Forecasting can be beneficial for businesses in many ways, including:

• Providing better understanding of your business cash flow
• Easing the process of planning and budgeting for the future based on income
• Improving decision-making
• Providing valuable insight into what's in their future
• Making decisions on how to best allocate resources for success

How many years should your financial forecast be?

Your financial forecast should either be projected over a specific time period or projected into perpetuity. There are various methods for determining how long a financial forecasting projection should go out, but many businesses use one to five years as a standard timeframe.

U.S. Small Business Administration. " Market Research and Competitive Analysis ."

Score. " Financial Projections Template ."

How to Create a Profit and Loss Forecast

Angelique O'Rourke

7 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 .

What’s included in an income statement?

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

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.

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Gross margin

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

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

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

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.

• Income statement examples

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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Table of Contents

• What’s included in an income statement?

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Home > Financial Projections > Income Statement Forecast

Income Statement Forecast

The income statement forecast, sometimes called the profit and loss forecast, is one of the three main statements for business plan financials. The income statement forecast shows a business’s financial performance over an accounting period. It is important to realize that the accounting period can be any length but is usually a month or a year.

Income Statement Forecast Format

A typical and useful income statement format for management is shown in the example below. The level of detail for each item will depend on your business, and who is using the information. For example, revenue could be broken down by product category, or operating expenses could be broken down into multiple lines such as rent, wages, light & heat etc.

Example Format

Understanding the income statement.

The projected income statement is important for many reasons:

• Firstly management should use the income statement forecast to identify whether the business made a profit for the period. The important figure is the bottom line net income. It should also use it to establish % relationships between expenses and revenue, to spot trends in operating profit ratios, and for comparison of actual results against a projection.
• Secondly they are used by suppliers to decide on whether credit is given as they identify the profitability of your business.
• Bank Managers utilise the income statement forecast as they base their lending ratios on certain aspects of it, for example interest cover = earinings before interest and tax / interest paid is used to determine whether the profit the business is making is sufficient to cover the interest payments on their loan.
• Finally the income statement forecast is used by investors to decide whether to invest or not and at what price. For example they will look at the income before tax to establish their likely return on investment.

Any number of people could be using your income statement forecasts to make decisions about your business. It is important that you have an understanding of what information the income statement is providing and what that information is telling you.

Our financial projections template includes the projected income statement template.

About the Author

Chartered accountant Michael Brown is the founder and CEO of Plan Projections. He has worked as an accountant and consultant for more than 25 years and has built financial models for all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a degree from Loughborough University.

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How to Make a Projected Income Statement

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A projected income statement shows profits and losses for a specific future period – the next quarter or the next fiscal year, for instance. It uses the same format as a regular income statement, but guesstimating the future rather than crunching numbers from the past. It's also known as a budgeted income statement.

Penetrate the Mystery

Your projected income statement is important for making business plans and for attracting investors. It has to be as accurate as possible, even though it's about events that haven't happened yet. Strategies for making projections depend on the age of your business and your own experience:

• If you're making projections for an established business, past sales and expenses give you a guide to the future.
• If your company is a startup but you have experience in the industry, use that experience to make your projections.
• If you don't have experience, hire an accountant who does, or extrapolate from the market research you did for your startup.

If your company is new, it's a good idea to make projections for the next three years. The first year's projections should include monthly budgeted income statements. After that you can go quarterly.

Sales and Expenses

To begin making your projections, look at sales. How many customers do you expect over the projection period? How many units sold, or hours of service, if you're providing services? What price are you charging? Project the cost of goods sold as well.

Next, extrapolate your expenses. These include fixed costs such as leasing a vehicle and variable costs such as marketing expenses. You don't have to break everything down item by item; a single item for "office supplies" is probably enough, without detailing price per ream of printer paper.

Drawing up the Statement

Say you're making a projection for the next quarter. Start with the business's projected sales income. Subtract the cost of goods sold to get the gross margin. Subtract other operating expenses to get net operating income, then subtract any interest payments due to get your net income.

Using Your Knowledge

Use the projected income statement to decide whether your plans need changing. Is your projected sales income too low? Then find a way to amp up the income, for example, by moving more units or increasing unit prices.

If the projections show your business running in the red at first, that's not surprising: Lots of businesses start out operating at a loss. However, the losses shouldn't be so deep they'll shut you down. It's a good idea to draw up a projected balance sheet so you can see how much debt you'll be carrying.

• All Business: Understanding the Projected Income Statement
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• Accounting Tools: Budgeted Income Statement

Fraser Sherman has written about every aspect of business: how to start one, how to keep one in the black, the best business structure, the details of financial statements. He's also run a couple of small businesses of his own. He lives in Durham NC with his awesome wife and two wonderful dogs.

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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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Free Small Business Income Statements, Spreadsheets, and Templates

By Andy Marker | April 6, 2022

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We’ve compiled a collection of the most helpful small business income statements, worksheets, and templates for small business owners and other stakeholders, free to download. 

Included on this page, you’ll find a small business income statement template , a small business balance sheet and income statement template , a simple small business cash flow template , and a small business comparative income statement . Plus, you’ll find helpful tips on using a small business income statement template .

Printable Small Business Income and Expenses Template

Download Printable Small Business Income and Expenses Template Microsoft Excel | Microsoft Word | Adobe PDF | Google Sheets

Use this printable small business income and expenses template to determine your net income over a period of time. Enter values into the customizable line-item rows, and the template will calculate your revenue and cost of goods sold (COGS) to determine your gross profit. Enter your expenses (such as rent, utilities, and office supplies) to see your total net income. This template is a great tool to track your business's finances over time. 

Read our article on free small business expense templates to find additional resources and to get the most out of your small business budgeting.

Yearly Small Business Income Statement Template

Download Yearly Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this yearly small business income statement template to manage your profit and losses over a three-year timeline. Track your costs in the customizable Expenses column, and enter your revenue and expenses to determine your net income. The template also includes a built-in tax rate calculator for a more accurate account of your net profit. 

To find more resources, check out our comprehensive roundup of free profit and loss templates .

Monthly Small Business Income Statement Template

Download Monthly Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this monthly small business income statement template to track and manage your small business finances. Enter the number of customers and the average sale per customer to determine your total monthly sales. Then, enter your operating, payroll, and office expenses to determine your total expenses. The template will automatically calculate these totals to show your net profit.

Sample Small Business Income Statement Template

Download Sample Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this simple small business income statement template for an overall analysis of your net income. You can customize the Revenue and Expenses lines to include items specific to your business; additionally, the template includes a Years Represented column that allows you to compare numbers over a two-year timeline. This is the perfect tool for taking a quick snapshot of your business cash flow. 

To find more resources, check out our small business budget templates.

Printable Monthly Small Business Income and Expenses Worksheet Template

Download Printable Monthly Small Business Income and Expenses Worksheet Template Microsoft Excel | Adobe PDF | Google Sheets

This simple, printable template is the perfect tool for tracking your business’s income, expenses, and transactions. The template includes three separate worksheets — simply enter monthly financial data, and the template will automatically calculate yearly totals. Help ensure you meet your financial goals, accurately predict projections, and make necessary adjustments with this template.

Freelance Income Statement Template

Download Freelance Income Statement Template Microsoft Excel | Google Sheets

Self-employed individuals can use this template to track their business income from clients, along with any business expenses. Enter your personalized expenses, including rent, office supplies, and insurance, to see your cash outflow. Then, enter your taxes, and the template will automatically calculate your net income. This is a must-have tool for small business owners looking to understand their business profits.

Daily Income and Expenditure Template for Small Business

Download Daily Income and Expenditure Template for Small Business Microsoft Excel | Google Sheets

For a daily analysis of your small business’s cash flow, use this template to track cash receipts, cash payments, and operating expenses. The template automatically calculates these totals on a daily basis to provide you with a detailed financial report. The template also shows your monthly ending cash position, so you can avoid any shortcomings. 

Check out our profit and loss templates for more resources on tracking your business’s cash flow.

Small Business Balance Sheet and Income Statement Template

Download Small Business Balance Sheet and Income Statement Template Microsoft Excel | Google Sheets

Use this income and expenses spreadsheet to help ensure that you never lose sight of your small business’s financial outlook. Enter your revenue and expenses, and the template will automatically calculate your net income. Plus, the customizable year columns enable you to compare your net income over a five-year timeline so that you can easily forecast your business’s economic health. 

Read our article on small business balance sheet templates for more resources on tracking your business expenses.

Small Business Income Statement Template

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

This simple small business income statement template calculates your total revenue and expenses, including advising, equipment, and employee benefits, to determine your net income. Use this template to track and compare your finances over a two-year timeline. Save the document so that you always have quick insight into the financial status of your business.

Startup Business Income and Expenses Template

Download Startup Business Income and Expenses Template Microsoft Excel | Adobe PDF | Google Sheets

Use this startup business income and expenses template to track your business’s cash flow. Compare your budgeted expenses and funding to your actual spending to understand any discrepancies. Overall, this template can help you make well-informed, financially accurate predictions so that you can reach your business goals.

Simple Small Business Cash Flow Template

Download Simple Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this simple small business cash flow template to monitor your cash increase or decrease over a certain period of time. Enter your cash receipts, payments, COGS, and operating expenses, and the built-in formulas will calculate your total cash payments, net cash change, and month-ending cash position.

Simple Small Business Profit and Loss Template

Download Simple Small Business Profit and Loss Template Microsoft Excel | Google Sheets

Regardless of your industry, you can use this simple small business profit and loss template to analyze your business’s financial status over a specific period of time. Customize your expenses by adding or removing line items, and the built-in formulas will calculate your gross profit and net income. 

Read our article on small business profit and loss templates to find additional resources and to get the most out of your small business’s profit and loss tracking.

Small Business Comparative Income Template

Download Small Business Comparative Income Template Microsoft Excel | Google Sheets

Use this detailed small business comparative template to closely maintain watch over your financial position. Enter line items for income and expenses to compare your budget to actual calculations. With detailed use, this template will enable you to never lose sight of your business's cash flow.

What Is a Small Business Income Statement Template?

A small business income statement template is a financial statement used to report performance. Templates include calculations for revenue, expenses, and overall profit and loss, and they are used to document, analyze, and project business finances. 

If you are a current or prospective small business owner, it’s imperative that you track your income and expenses, as doing so will ensure you have accurate information regarding how your company spends and makes money. An income statement template helps you to identify areas of risk and patterns in profit and loss, and to make educated decisions around your budget. 

A small business income statement template typically includes the following line items for tracking your business's financial status: 

• Budget: A budget is a spending plan for your business based on your estimated income and expenses.
• Cash Ending Position: This refers to the money your business has at any specific point in time. 
• Cash Flow: This is the amount of money that moves in and out of your business. 
• Cost of Goods Sold (COGS): This is any money spent that is associated with your product, such as packaging and labor.
• Expenses: List anything on which you spend money to run your business, such as rent, advertising, equipment, insurance, phone, and employee salaries. 
• Gross Profit: Determine this number by subtracting the COGS from your total sales.
• Gross Revenue: The formula to calculate gross revenue is total revenue less the COGS. 
• Income: List anything that brings money into your business, such as sales and donations. 
• Net Income or Net Profit: This number reflects the amount earned from sales.
• Revenue: Calculate revenue by adding together the total amount of income made by sales and services. 
• Tax: This includes any mandatory monetary contributions made to the government.

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How to Prepare an Income Statement

• 09 Dec 2021

When it comes to financial statements , each communicates specific information and is needed in different contexts to understand a company’s financial health.

The income statement is one of the most important financial statements because it details a company’s income and expenses over a specific period. This document communicates a wealth of information to those reading it—from key executives and stakeholders to investors and employees. Being able to read an income statement is important, but knowing how to generate one is just as critical.

Here’s an overview of the information found in an income statement, along with a step-by-step look at the process of preparing one for your organization.

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What Is an Income Statement?

An income statement is a financial report detailing a company’s income and expenses over a reporting period. It can also be referred to as a profit and loss (P&L) statement and is typically prepared quarterly or annually.

Income statements depict a company’s financial performance over a reporting period. Because the income statement details revenues and expenses, it provides a glimpse into which business activities brought in revenue and which cost the organization money—information investors can use to understand its health and executives can use to find areas for improvement.

Related: How to Read & Understand an Income Statement

An income statement typically includes the following information:

• Revenue: How much money a business took in during a reporting period
• Expenses: How much money a business spent during a reporting period
• Costs of goods sold (COGS): The total costs associated with component parts of whatever product or service a company makes and sells
• Gross profit: Revenue minus costs of goods sold
• Operating income: Gross profit minus operating expenses
• Income before taxes: Operating income minus non-operating expenses
• Net income: Income before taxes
• Earnings per share (EPS): Net income divided by the total number of outstanding shares
• Depreciation: Value lost by assets, such as inventory, equipment, and property, over time
• EBITDA: Earnings before interest, depreciation, taxes, and amortization

Related: 13 Financial Performance Measures Managers Should Monitor

Steps to Prepare an Income Statement

1. choose your reporting period.

Your reporting period is the specific timeframe the income statement covers. Choosing the correct one is critical.

Monthly, quarterly, and annual reporting periods are all common. Which reporting period is right for you depends on your goals. A monthly report, for example, details a shorter period, making it easier to apply tactical adjustments that affect the next month’s business activities. A quarterly or annual report, on the other hand, provides analysis from a higher level, which can help identify trends over the long term.

2. Calculate Total Revenue

Once you know the reporting period, calculate the total revenue your business generated during it.

If you prepare the income statement for your entire organization, this should include revenue from all lines of business. If you prepare the income statement for a particular business line or segment, you should limit revenue to products or services that fall under that umbrella.

3. Calculate Cost of Goods Sold (COGS)

Next, calculate the total cost of goods sold for any product or service that generated revenue for your business during the reporting period. This encompasses direct and indirect costs of producing and selling products or services, including:

• Direct labor expenses
• Material expenses
• Parts or component expenses
• Distribution costs
• Any expense directly tied to the production of your product or service

4. Calculate Gross Profit

The next step is to determine gross profit for the reporting period. To calculate this, simply subtract the cost of goods sold from revenue.

5. Calculate Operating Expenses

Once you know gross profit, calculate operating expenses (OPEX).

Operating expenses are indirect costs associated with doing business. These differ from cost of goods sold because they’re not directly associated with the process of producing or distributing products or services. Examples of expenses that fall under the OPEX category include:

• Office supplies

6. Calculate Income

To calculate total income, subtract operating expenses from gross profit. This number is essentially the pre-tax income your business generated during the reporting period. This can also be referred to as earnings before interest and taxes (EBIT).

7. Calculate Interest and Taxes

After calculating income for the reporting period, determine interest and tax charges.

Interest refers to any charges your company must pay on the debt it owes. To calculate interest charges, you must first understand how much money you owe and the interest rate being charged. Accounting software often automatically calculates interest charges for the reporting period.

Next, calculate your total tax burden for the reporting period. This includes local, state, and federal taxes, as well as any payroll taxes.

8. Calculate Net Income

The final step is to calculate net income for the reporting period. To do this, subtract interest and then taxes from your EBIT. The number remaining reflects your business’s available funds, which can be used for various purposes, such as being added to a reserve, distributed to shareholders, utilized for research and development, or to fuel business expansion.

Income Statement Example

Below is an example income statement for a fictional company. As you can see at the top, the reporting period is for the year that ended on Sept. 28, 2019.

Go to the alternative version .

During the reporting period, the company made approximately $4.4 billion in total sales. It cost the business approximately $2.7 billion to achieve those sales. As a result, gross profit was about $1.6 billion.

Next, $560.4 million in selling and operating expenses and $293.7 million in general administrative expenses were subtracted. This left the company with an operating income of $765.2 million. To this, additional gains were added and losses subtracted, including $257.6 million in income tax.

At the bottom of the income statement, it’s clear the business realized a net income of $483.2 million during the reporting period.

A Critical Skill for Business Leaders

Although the income statement is typically generated by a member of the accounting department at large organizations, knowing how to compile one is beneficial to a range of professionals.

Whether you’re an individual contributor, a member of the leadership team in a non-accounting role, or an entrepreneur who wears many hats, learning how to create an income statement can provide a deeper understanding of the financial metrics that matter to your business. It can also help improve your financial analysis capabilities .

Do you want to take your career to the next level? Consider enrolling in Financial Accounting —one of three courses comprising our Credential of Readiness (CORe) program —which can teach you the key financial topics you need to understand business performance and potential. Not sure which course is right for you? Download our free flowchart .

Data Tables

Company b income statement.

For Year Ended September 28, 2019 (In thousands)

Go back to the article .

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