Business Plan Financial Projections [Simplified] — Income Statement Edition

You already have a plan — here’s how to quantify it.

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Financial projections are the backbone of a solid business plan; and for most soon-to-be entrepreneurs, they’re also a major source of stress. What a lot of people may not realize is that once you finish writing the other sections of your business plan, everything you need for the financials is sitting right in front of you. It’s just a matter of putting it all into place.

This article breaks down the process of preparing income statement projections, provides a step-by-step example, and highlights a few things to keep in mind during the process.

Getting Started

Financial projections use numbers to show what the rest of the business plan explains with words. The financials shouldn’t say anything that isn’t already described in the written portion, and vice versa (everything in the written portion should be reflected in the financials). Both parts should tell the same story.

When you’re ready to get started, carefully read through each section of your business plan and highlight every single piece of quantitative information. Some quantitative data doesn’t show up as a number, so it’s easy to overlook. Take your time. Keep an eye out for words like split, share, and double. Highlight anything, and everything, that has a monetary impact.

For example, highlight the section of your operations plan that says the number of full-time employees will double every year for the first three years. This will remind you that the amount of salaries and wages expenses in Year 2 should be twice the amount it was in Year 1.

Highlight the section of your sales & marketing plan that says products will be sold with a warranty. This will remind you to include a line item for warranty expense on your income statement.

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Projecting the Income Statement — Line by Line Example

Line 1 | Gross Revenue — Our imaginary company will only sell one type of product. According to the sales forecast in our sales and marketing plan, we expect to sell 10,000 units in the first year, for $30 each.

Multiply the expected sales volume (10,000) by the product’s selling price ($30) to calculate the gross revenue ($300,000).