“Business is all about solving people’s problems – at a profit.”
― Paul Marsden
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.
Either way, the format is standard, as shown here on the right.
- 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 in 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 that LivePlan does for the bicycle store I’ve been using as an example. At this point you’ve already done all the inputs for the formal projection. LivePlan gathers the information it already has, and puts it into a formal projection matching normal standards.
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.
LivePlan also puts the formal Projected Profit and Loss as an annual summary into your plan, as shown in the illustration below; and a monthly version into the appendices.
LivePlan will also automatically draw charts to insert in a plan along with the Projected Profit and Loss. The following illustration shows a LivePlan chart of Projected Net Profits.