Financial Factors
The income statement is a simple and straightforward report on the proposed business's cash-generating ability. It is a score card on the financial performance of your business that reflects when sales are made and when expenses are incurred. It draws information from the various financial models developed earlier such as revenue, expenses, capital (in the form of depreciation), and cost of goods. By combining these elements, the income statement illustrates just how much your company makes or loses during the year by subtracting cost of goods and expenses from revenue to arrive at a net result -- which is either a profit or a loss.
For a business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second, and annually for each year thereafter. It is formed by listing your financial projections in the following manner:
1. Income -- Includes all the income generated by the business and its sources.
2. Cost of goods -- Includes all the costs related to the sale of products in inventory.
3. Gross profit margin -- The difference between revenue and cost of goods. Gross profit margin can be expressed in dollars, as a percentage, or both. As a percentage, the GP margin is always stated as a percentage of revenue.
4. Operating expenses -- Includes all overhead and labor expenses associated with the operations of the business.
5. Total expenses -- The sum of all overhead and labor expenses required to operate the business.
6. Net profit -- The difference between gross profit margin and total expenses, the net income depicts the business's debt and capital capabilities.
7. Depreciation-- Reflects the decrease in value of capital assets used to generate income. Also use ...