PROFIT & LOSS STATEMENT FORECAST FOR YEAR ONE

Transcription

1 PROFIT & LOSS STATEMENT FORECAST FOR YEAR ONE NET SALES Less: Cost of Goods Sold Beginning Inventory + Purchases - Ending Inventory = COST OF GOODS SOLD GROSS PROFIT OPERATING EXPENSES Gross Wages Owner(s) Employees Payroll Taxes Payroll Expense Accounting & Legal Exp. Outside Services (Other) Bad Debts Expense Advertising Expense Office Supplies Expense Postage Expense Dues & Subscriptions Expense Rent Expense Repairs & Maintenance Expense Travel Expense Delivery Expense Telephone Expense Utilities Expense Insurance Expense Tax Expense (Real Estate) Depreciation Expense Miscellaneous Expense TOTAL OPERATING EXPENSES OTHER EXPENSES Interest Expense TOTAL OTHER EXPENSES TOTAL EXPENSES NET INCOME (LOSS) BEFORE TAXES Less: Income Tax Expense NET INCOME (LOSS) AFTER TAXES NET PROFIT (LOSS) 1

2 PROFIT & LOSS STATEMENT FORECAST FOR YEAR TWO NET SALES Less: Cost of Goods Sold Beginning Inventory + Purchases - Ending Inventory = COST OF GOODS SOLD GROSS PROFIT OPERATING EXPENSES Gross Wages Owner(s) Employees Payroll Taxes Payroll Expense Accounting & Legal Exp. Outside Services (Other) Bad Debts Expense Advertising Expense Office Supplies Expense Postage Expense Dues & Subscriptions Expense Rent Expense Repairs & Maintenance Expense Travel Expense Delivery Expense Telephone Expense Utilities Expense Insurance Expense Tax Expense (Real Estate) Depreciation Expense Miscellaneous Expense TOTAL OPERATING EXPENSES OTHER EXPENSES Interest Expense TOTAL OTHER EXPENSES TOTAL EXPENSES NET INCOME (LOSS) BEFORE TAXES Less: Income Tax Expense NET INCOME (LOSS) AFTER TAXES NET PROFIT (LOSS) 2

3 PROFIT & LOSS STATEMENT FORECAST FOR YEAR THREE NET SALES Less: Cost of Goods Sold Beginning Inventory + Purchases - Ending Inventory = COST OF GOODS SOLD GROSS PROFIT OPERATING EXPENSES Gross Wages Owner(s) Employees Payroll Taxes Payroll Expense Accounting & Legal Exp. Outside Services (Other) Bad Debts Expense Advertising Expense Office Supplies Expense Postage Expense Dues & Subscriptions Expense Rent Expense Repairs & Maintenance Expense Travel Expense Delivery Expense Telephone Expense Utilities Expense Insurance Expense Tax Expense (Real Estate) Depreciation Expense Miscellaneous Expense TOTAL OPERATING EXPENSES OTHER EXPENSES Interest Expense TOTAL OTHER EXPENSES TOTAL EXPENSES NET INCOME (LOSS) BEFORE TAXES Less: Income Tax Expense NET INCOME (LOSS) AFTER TAXES NET PROFIT (LOSS) 3

4 PROFIT & LOSS STATEMENT DEFINITIONS Net Sales Gross sales that have been reduced by deductions for returned goods, allowances, and sometimes cash discounts. Sales include revenues or income received in exchange for goods and services recorded for a given accounting period, either on a cash basis (as received) or on an accrual basis (as earned). Beginning Inventory Amount of inventory at the beginning of the accounting period. This period may be the date the business started, and every following period; for example, the fiscal year or the calendar year. Also, the ending inventory figures from Year 1 become the beginning inventory for Year 2, and this continues for Year 3, etc. Purchases Merchandise bought specifically for inventory during the accounting period. Ending Inventory Amount of inventory at the end of the accounting period, either fiscal year or calendar year. Cost of Goods Sold Beginning Inventory plus Purchases less Ending Inventory. If projecting for a new business, a more reasonable way to figure would be to check industry resources and multiplying by projected annual sales (i.e., apparel and accessory retail industry: average Cost of Goods Sold is 63% of sales; therefore, if projected sales are $100,000, then Cost of Goods is $63,000). Gross Profit The Net Sales figure minus the Cost of Goods Sold figure. OPERATING EXPENSES: Gross Wages: Owner The amount of wages, including overtime, before taxes, for the owner(s) of the business for the accounting period, unless the owners take a draw which appears on the balance sheet. Employees The amount of wages, including overtime, before taxes, for the employees for the accounting period. Payroll Taxes A percentage of gross wages or salaries that are levied, which include employer s share of security (FICA), and federal and state unemployment taxes. Also included is self-employment tax for owners. Payroll Expense This figure also includes such things as paid vacations, paid sick leave, and health insurance. Accounting and Legal Expense Outside services, including for example, bookkeeping, or hiring an accountant to do the business s taxes. This expense may also include hiring a lawyer for a short period to help draft legal documents for the business or when acquiring real estate. Outside Services (Other) Includes such things as consultants, professional services, graphics and design, or other accounting and legal expenses. Bad Debts Expense A debt that is not collectible and is worthless to the creditor, which causes the creditor to lose money and is therefore an expense. 4

5 Advertising Expense This amount should be adequate to maintain sales volume by using such methods as the yellow pages, billboards, newspapers, radio, television, etc. Office Supplies Expense Items used in the course of the business, not for resale. Postage Expense Includes the cost of postage to send mail, either for stamps, or the equipment to do bulk mailing or metering the mail. Rent Expense The payment for the use of property. Dues and Subscriptions The membership dues to have the owner and/or employees belong to a certain organization or club associated with that business industry. Also, the payments for the subscriptions to magazines or newsletters relating to the business. Repairs and Maintenance Work performed to return property to original condition, such as painting and decorating. This also includes the necessary care and management of equipment and operations. Car and Travel Expense If a personal car is used, or the cost of parking when on a business trip; also maintenance, gas, and insurance of company vehicle. Careful logs of dates traveled, reason for traveling, and mileage should be maintained for tax purposes if a personal care is used for business travel. Delivery Expense The cost of delivering the business s product or service. If this cost is considered when figuring the mark-up for the product or service, then move this expense below Purchases in the Cost of Goods Sold section. Telephone Expense The business s telephone bill, including charges for telephone service, local calls, long distance calls, installations, new instruments, and the like. Utilities Expense Water, heat, light and/or power, or what is required to operate a building. Insurance Expense Coverage on business property and products produced, includes fire, liability, worker s compensation, health care for employees, and other coverage carried. Taxes (Real Estate) Includes inventory tax, sales tax, excise tax, and property tax tax imposed on owners of property based on the assessed value of property. Depreciation Expense Process in which the cost of property (excluding land), plant, and equipment is distributed over its useful life. The purpose of depreciation is to recover from operations the original cost of the asset. If operations aren t profitable, the depreciation becomes an unrecovered cost or a loss. Some methods include the straight-line method the asset is depreciated at equal periodic charges over its useful life; the decreasing charge method; depreciation charged to activity or intensity of use method; or the compound interest method of depreciation. You can call the IRS ( ) to obtain a depreciation schedule for all type of property/goods, which can aid you in making your depreciation projections. Ask for Publication 534. Miscellaneous Expense Any other small expense for which separate accounts would not be practical. 5

6 Total Operating Expenses The total of the operating expenses including gross wages, payroll expense miscellaneous expense. OTHER EXPENSES: Interest Expense The cost of borrowing money, which can be in the form of a loan. Total Other Expenses The total of other expenses, including the interest expense or any other expenses that might be added. Total Expenses The total of Operating Expenses and Other Expenses. Net Income (Loss) Before Taxes Gross Profit amount minus Total Expenses amount. Income Tax Expense Tax based on income earned by a person or business. Usually a percentage of net income before taxes, such as between 15 to 33%. Net Income (Loss) After Taxes Net Income Before Taxes amount minus the Income Tax Expense amount. Net Profit (Loss) The same amount as Net Income (Loss) After Taxes. ** Projections for Years 2 and 3 ** - A financial projection is based on the business owner s assumptions reflecting conditions the owner expects would exist and the course of action the owner expects to take, given one or more hypothetical assumptions. The projections can also be based on comparisons with industry statistics. Much of this information can be found in the local library (see attached Bibliography). Also, projections can be based by adding five percent or any percent, which will best reflect the actions the owner will take to increase the profitability of the business. Projecting for inflation will not in itself be sufficient. The business owner s judgment will best help decide which method is most appropriate. 6

7 FINANCIAL PROJECTION RESOURCES (All are available at the UWSP Library, which is open to the public; in addition, check your local library.) Annual Statement Studies Robert Morris Associates Provides comparative figures on common financial ratios and balance sheet/income statement data for particular types of firms within the broad categories of manufacturing, wholesaling, retailing, and service industries. The figures are further categorized by relative firm sizes. Industry Norms and Key Business Ratios Dun & Bradstreet Includes financial ratios in individual industries. Almanac of Business and Industrial Finance Ratios Dun & Bradstreet Indexed by type of business and SIC code. Includes bar charts of ratios and financial and operating data and ratios for various industries. Financial Studies of the Small Business Financial Research Associates Compilation of financial statement data focusing primarily on small businesses. Dun s Census of American Business Dun & Bradstreet Compilation of statistical information regarding potential market size, location of potential buyers, prospective business location suggestions based on number of like businesses and potential buyers in a given area, etc. Information given for national, state, and county geographical levels. Small Business Sourcebook Gale Research Company Includes listings of trade associations and start-up resources for 224 types of small businesses from which to obtain financial information. Encyclopedia of Associations Gale Research Company Provides a list of active trade, business and professional associations. Encyclopedia of Business Information Sources Gale Research Company Guide to approximately 22,000 information sources on 1,100 business topics such as basic statistical sources, associations, periodicals, etc. The Entrepreneur and Small Business Problem Solver William A. Cohen Lists additional sources of business financial ratios and provides a list of trade associations in the U.S. and Canada. (Helpful, in other ways also, for starting a business! Only available in bookstores.) S:/Handouts/Profit & Loss Statement July 2002, DS 7