A projected profit & loss statement — a financial statement that is sometimes called an income statement — shows an estimated calculation for the year's sales income and expenses. The result of these guesstimates is a number called the net profit or net loss that shows whether the business is set to make or lose money.
The profit & loss statement is a comparatively simple spreadsheet that differs from a cash-flow statement because it is solely concerned with income from sales. No assets are included in this statement. In addition, a profit & loss statement covers an entire year's worth of sales and expenses, whereas a cash-flow statement can focus on a single week or month.
Why Determine Projected Profit and Loss?
Estimating projected profit and loss for the entire year gives you a benchmark to which you can refer throughout the year. Are your sales numbers low or high compared to your projected profit & loss statement? This information can signal a need to ramp up a sales initiative or to keep up your current momentum.
Also, once you have several projected profit & loss statements, you can search for trends over time. Because this is such a simple statement, it gives a big-picture look at your income rather than muddling these trends with too many details.
Formatting a Projected Profit & Loss Statement
A projected profit & loss statement is a basic two-column spreadsheet that you can easily create in a program like Excel or Google Sheets. It has three major sections: sales, cost of sales and fixed expenses.
In the left column, create a header for "Sales". Under that header, list all of the products (or categories of products) that you sell. In the next column, add your corresponding estimates of how much income you generate from the sale of each product in a year. The final row of this section should be "Total Sales," a summation of all the sales figures.
Using the same format, create a section for "Cost of Sales." Next, create a line called "Gross Profits" and subtract the total cost of sales from the total sales. Your final section should be "Fixed Expenses", and when you subtract the total fixed expenses from the gross profits, the result is your net profit (positive number) or loss (negative number).
Calculating Projected Profit and Loss
In your first year of business, creating financial projections will involve a lot of guess work. Do your best to research typical overhead costs like rent and utilities in your area to help fill in the fixed-cost section. You should also be able to research the direct cost of sales for your products whether you're developing them or purchasing them wholesale to help you make an estimate.
Finally, be modest in calculating your sales figures. In fact, you might want to work backward on your first projected profit & loss statement to see what your bare-minimum sales numbers need to be in order to break even.
If you've already been in business for a while, use your current balance sheet and sales figures to help you make more accurate estimates for your projected profit & loss statements. Consider any market or economic trends that may cause you to make more or fewer sales in any given year.
Comparing to Actual Figures
Once the year is over, you can compare to your estimates your actual total sales, total cost of sales, gross profit and net profit. Did business meet your expectations or fall short? Look for opportunities within your sphere of influence to increase sales or cut down on expenses. Then, create a new projected profit & loss statement for next year.