Tim Berry

Planning, Startups, Stories

Tim berry on business planning, starting and growing your business, and having a life in the meantime., standard business plan financials: projected profit and loss.

Continuing with my series here on standard business plan financials, all taken from my Lean Business Planning site, 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.

Simple Profit and Loss

  • 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 is 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 for the bicycle store I’ve been using as an example. 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.

Sample Profit Loss

A lean business plan will normally include sales, costs of sales, and expenses. To take it from there to a more formal projected Profit and Loss is a matter of collecting forecasts from the lean plan. The sales and costs of sales go at the top, then operating expenses. Calculating net profit is simple math.

From Lean to Profit and Loss

Keep your assumptions simple. Remember our principle about planning and accounting. Don’t try to calculate interest based on a complex series of debt instruments; just average your interest over the projected debt. Don’t try to do graduated tax rates; use an average tax percentage for a profitable company.

Notice that the Profit and Loss involves only four of the Six Key Financial Terms . While a Profit and Loss Statement or Projected Profit and Loss affects the Balance Sheet because earnings are part of capital, it includes only sales, costs, expenses, and profit.

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Hi, In case of bank financing for machineries and working capital, how can it be broken down in to the expense stream? ( capital + interest)

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When you spend on assets is not deductible from income, and is therefore not an expense. What you spent to repay the principle of a loan is not deductible, and therefore not an expense. The interest on a loan is deductible, and is an expense.

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Excuse me, may I know if the project profit & loss should plan for the first year only or for year 1-3 in business plan of a new company?

Kattie Wan, I recommend for normal cases the projected profit and loss monthly for the first 12 months, and two years annually after that. There are always special cases, though; every business is different.

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How to Create a Profit and Loss Forecast

Female entrepreneur sitting in her home office reviewing her profit and loss statement.

Angelique O'Rourke

7 min. read

Updated October 27, 2023

An income statement, also called a profit and loss statement (or P&L), is a fundamental tool for understanding how the revenue and expenses of your business stack up.

Simply put, it tells anyone at-a-glance if your business is profitable or not. Typically, an income statement is a list of revenue and expenses, with the company’s net profit listed at the end (check out the  section on income statement examples below  to see what it looks like). 

Have you ever heard someone refer to a company’s “bottom line”? They’re talking about the last line in an income statement, the one that tells a reader the net profit of a company, or how profitable the company is over a given period of time (usually quarterly or annually) after all expenses have been accounted for.

This is the “profit” referred to when people say “profit and loss statement,” or what the “p” stands for in “P & L.” The “loss” is what happens when your expenses exceed your revenue; when a company is not profitable and therefore running at a loss.

As you read on, keep in mind that cash and profits aren’t the same thing. For more on how they’re different,  check out this article .

What’s included in an income statement?

The top line of your profit and loss statement will be the money that you have coming in, or your revenue from sales. This number should be your initial revenue from sales without any deductions.

The top line of your income statement is really just as important as the bottom line; all of the direct costs and expenses will be taken out of this beginning number. The smaller it is, the smaller the expenses have to be if you’re going to stay in the black.

If you’re  writing a business plan  document and don’t yet have money coming in, you might be wondering how you would arrive at a sales number for a financial forecast. It’s normal for the financials of a business plan to be your best educated guess at what the next few years of numbers will be. No one can predict the future, but you can make a reasonable plan.

Check out this article about forecasting sales  for more information.

Direct costs

Direct costs, also referred to as the cost of goods sold, or COGS, is just what it sounds like: How much does it cost you to make the product or deliver the service related to that sale? You wouldn’t include items such as rent for an office space in this area, but the things that directly contribute to the product you sell.

For example, to a bookstore, the direct cost of sales is what the store paid for the books it sold; but to a publisher, its direct costs include authors’ royalties, printing, paper, and ink. A manufacturer’s direct costs include materials and labor. A reseller’s direct costs are what the reseller paid to purchase the products it’s selling.

If you only sell services, it’s possible that you have no direct costs or very low direct costs as a percentage of sales; but even accountants and attorneys have subcontractors, research, and photocopying that can be included in direct costs.

Here’s a simple rule of thumb to distinguish between direct costs and regular expenses: If you pay for something, regardless of whether you make 1 sale or 100 sales, that’s a regular expense. Think salaries, utilities, insurance, and rent. If you only pay for something when you make a sale, that’s a direct cost. Think inventory and paper reports you deliver to clients.

What’s your biggest business challenge right now?

Gross margin.

Gross margin is also referred to as gross profit. This number refers to the difference between the revenue and direct costs on your income statement.

Revenue – Direct Costs = Gross Margin

This number is very important because it conveys two critical pieces of information: 1.) how much of your revenue is being funneled into direct costs (the smaller the number, the better), and 2.) how much you have left over for all of the company’s other expenses. If the number after direct costs is smaller than the total of your operating expenses, you’ll know immediately that you’re not profitable.

Operating expenses

Operating expenses are where you list all of your regular expenses as line items, excluding your costs of goods sold.

So, you have to take stock of everything else your company pays for to keep the doors open: rent, payroll, utilities, marketing—include all of those fixed expenses here.

Remember that each individual purchase doesn’t need its own line item. For ease of reading, it’s better to group things together into categories of expenses—for example, office supplies, or advertising costs.

Operating income

Operating income is also referred to as EBITDA, or earnings before interest, taxes, depreciation, and amortization. You calculate your operating income by subtracting your total operating expenses from your gross margin.

Gross Margin – Operating Expenses = Operating Income

Operating income is considered the most reliable number reflecting a company’s profitability. As such, this is a line item to keep your eye on, especially if you’re  presenting to investors . Is it a number that inspires confidence?

This is fairly straightforward—here you would include any interest payments that the company is making on its loans. If this doesn’t apply to you, skip it.

Depreciation and amortization

These are non-cash expenses associated with your assets, both tangible and intangible. Depreciation is an accounting concept based on the idea that over time, a tangible asset, like a car or piece of machinery, loses its value, or depreciates. After several years, the asset will be worth less and you record that change in value as an expense on your P&L.

With intangible assets, you’ll use a concept called amortization to write off their cost over time. An example here would be a copyright or patent that your business might purchase from another company. If the patent lasts for 20 years and it cost your company $1 million to purchase the patent, you would then expense 1/20th of the cost every year for the life of the patent. This expense for an intangible asset would be included in the amortization row of the income statement.

This will reflect the income tax amount that has been paid, or the amount that you expect to pay, depending on whether you are recording planned or actual values. Some companies  set aside an estimated amount of money  to cover this expected expense.

Total expenses

Total expenses is exactly what it sounds like: it’s the total of all of your expenses, including interest, taxes, depreciation, and amortization.

The simplest way to calculate your total expenses is to just take your direct costs, add operating expenses, and then add the additional expenses of interest, taxes, depreciation, and amortization:

Total Expenses = Direct Costs + Operating Expenses + Interest + Taxes + Depreciation + Amortization

Net profit, also referred to as net income or net earnings, is the proverbial bottom line. This is the at-a-glance factor that will determine the answer to the question, are you in the red? You calculate net profit by subtracting total expenses from revenue:

Net Profit = Revenue – Total Expenses

Remember that this number started at the top line, with your revenue from sales. Then everything else was taken out of that initial sum. If this number is negative, you’ll know that you’re running at a loss. Either your expenses are too high, you’re revenue is in a slump, or both—and it might be time to reevaluate strategy.

  • Income statement examples

Because the terminology surrounding income statements is variable and all businesses are different, not all of them will look exactly the same, but the core information of revenue minus all expenses (including direct costs) equals profit will be present in each one.

Here is an income statement from Nike, to give you a general idea:

Nike income statement

An  income statement from Nike .

As you can see, while Nike uses a variety of terms to explain what their expenses are and name each line item as clearly as possible, the takeaway is still the bottom line, their net income.

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Business Plan Profit Loss

profit and loss

When creating a business plan, it is important for you to showcase your financial statements, one of which is the profit and loss statement . This document is used to show both the revenues and expenses of your organization within a particular time period. With the usage of a business plan profit and loss statement, you can easily present how you transform your revenues into net income which is a great way to attract and/or update your business stakeholders as well as to ensure that your financial conditions can sustain your operations and support your future action plans.

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Business Plan Profit And Loss Example Template

business plan profit and loss

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Size: A4, US

We have listed a number of business plan profit and loss template examples in this post available at your disposal. Make sure to download and look into the templates and examples that we have provided so you can have credible guides when developing both the format and content of your business plan profit and loss statement.

Business Plan Template with Profit and Loss Discussion Example

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Business Plan with Profit and Loss Statement Example

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Things to Look into When Creating a Business Plan Profit and Loss Statement

A business plan profit and loss statement is very important as it can help you address certain issues and/or problems about your financial condition. Moreover, it can present the actual figures that you need to be aware of not only with regards your profits but also your expenses. To come up with an effective business plan profit and loss statement, you have to make sure that you will be keen and specific when listing down all the details that are needed to be present in the document. Here are some of the elements and factors that you have to consider when making a comprehensive business plan profit and loss statement:

  • Be aware of where the business plan profit and loss statement will be used. This can help you identify the time period that is needed to be observed in the statement presentation. Profit and loss statements commonly scope the monthly, quarterly, or yearly sales and expenses of your business. The length of time seen in the document will depend on the reason why the profit and loss statement is currently needed.
  • Do not get confused about a business plan profit and loss statement and a balance sheet. Even if they are both necessary to be included in your financial statement, you have to remember that there are still differences between the two. Like a cash flow statement, your business plan profit and loss statement is time-bound. This means that the document is a representation of what had occurred within a specific or given time period. On the other hand, a balance sheet only presents the capital, expenses, and liabilities of the company just in a particular moment or point in time.
  • Just like when developing a  profit and loss budget , you have to be reminded that the creation of your business plan profit and loss statement must not be entirely dependent on the same documents used by other businesses. Creating a business plan profit and loss statement contains numbers that are based on actual and firsthand information. Hence, you have to make sure that you will use methods and judgments that are suitable for the details of your own statement.
  • There are many ways that a profit and loss statement can be called. Some entities call it income statement and others also use a variety of terms. Even if there are differences with what this document is called, the content of each are still the same with one another when it comes to specifications of the ability, or the inability, of businesses to be profit-generating.

Business Plan Profit and Loss Statement Basic Guide and Template Example

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Profit and Loss Statement Template Example

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Business Plan Profit and Loss Statement Template Example

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Advantages of Having and Using a Business Plan Profit and Loss Statement

Aside from a  customer profitability analysis , market analysis, and business plan profit and loss analysis, there are still a lot of documents and analysis materials that a business need to prepare to make sure that it will always be updated of its current standing as a corporate entity. To veer away from looking into the hardships and challenges that you may undergo once you immerse yourself in the development of business documents, you and your team must be aware of the positive impacts and effects that having particular materials and tools can provide your business with. Listed below are some of the benefits and advantages that you can get and experience if you will create a functional, accurate, and thorough business plan profit and loss statement.

  • A business plan profit and loss statement can help your creditors and investors to be knowledgeable of how your business performed within a particular time period. An impressive business plan profit and loss statement can give your business the advantage of easily persuading or convincing your stakeholders to further support your corporate undertakings.
  • A business plan profit and loss statement can make it more effective for you to predict your future financial performance. Through this, you can measure your company’s ability and capacity to generate cash flows accordingly as you sustain your business and its operations.
  • A business plan profit and loss statement can serve as a reference whenever you need to create wise financial decisions that can impact or affect your business and its stakeholders. Having this document at hand can give you an idea of what to prioritize, what to change, and what to remove in your financial activities and processes.
  • A business plan profit and loss statement can be one of the proofs of the financial successes and milestones that your business have acquired and attained. Understanding your net income and how it can reflect the performance of your business can also give you an idea of the growth and development that your company was able to achieve at a given time span.
  • A business plan profit and loss statement is usually one of the requirements of the government and industry associations so that a business can legally continue its operations, maintain its association membership status, present its current condition, and/or ensure that it is following particular regulations. If you will create a business plan profit and loss statement regularly, then you can ensure that your efforts will not be wasted as you already have the document that you are required to present to particular entities at any given time.
  • A business plan profit and loss statement can make it easier for your business to prepare when filing its taxes. However, this document should not be limited for this circumstance as it can also be used to present how the company is performing not only to investors but also to the employees and other stakeholders of the business.

Simple Profit and Loss Statement Layout Example

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Profit and Loss Statement for a Business Plan Example

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Breaking Down a Business Plan’s Profit and Loss Statement

Most business plan profit and loss statements are done annually. However, there are also some businesses that would like to have an updated monthly or quarterly profit and loss statement. With this, you have to keep in mind that developing the specified document must be based on the needs of your business and not solely when it is required by external organizations and entities. Unlike a  business consulting business plan  where content varies on the area/s of the business where consultation is necessary, the composition of profit and loss statements are mostly the same. Here are some of the common or basic items that you can see in a simple business plan profit and loss statement:

  • The clean and accurate financial records that have been used as references in the development of the profit and loss statement
  • The specification of the selected time period which limits and scopes the duration where the details within the profit and loss statement are based on and has been gathered from
  • The reason of the profit and loss statement’s creation
  • The name of the person or the identification of the team who made the profit and loss statement
  • The gross profit which is identified by deducting the business’s cost of sales from the revenue
  • The operating profit which is identified by specifying the gross profit of the business and subtracting operating expenses from it
  • The display of non-operating expenses and revenues of the organization which are essential to still be taken into account for a more accurate financial assessment
  • The description and presentation of the total profit or loss of the business.

Business Plan with Profit and Loss Table Example

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Business Planning: Profit and Loss Statement Preparation Example

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Why Do You Need a Business Plan Profit and Loss Statement?

Do you really think that it is essential and necessary for you to create a business plan profit and loss statement? Even if it is added work to your team, we highly recommend you to develop this document as it can provide a lot of benefits to your organization. Just like a management consulting business plan , a business plan profit and loss statement can also be an added value to your overall business operations and management. Listed below are some of the reasons why your business needs to have its own business plan profit and loss statement.

  • Using a business plan profit and loss statement can present you the reality about your financial condition. This is a great way to know the actual profit that your business is making, or even losing, within a specific period.
  • Making a business plan profit and loss statement can give you references that can be used when making decisions about improving sales targets, developing financial practices, or changing different activities that can better your financial state as a business.
  • Developing a business plan profit and loss statement can help you a lot if you need to apply for business loans. The ability of your business to present its financial status can make it easier for creditors and investors to trust you.
  • Creating a business plan profit and loss statement can make it easier for you to present to different stakeholders during meetings. It can be for the owner of the business, the shareholders of the company, the management, and even the employees of the organization.

Business Plan Profit and Loss Statement Format Example

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Tips in Developing a Business Plan Profit and Loss Statement

Business plan profit and loss statements that are used by different organizations from various industries can sometimes be very basic but can also be complex. A few of the tips that you can use and refer to if you want to make a detailed and well-formulated business plan profit and loss statement include the following:

  • Just as how you create a  lawn care business plan  and other business document, it is important for you to know the scope and limitations of the information that you will discuss in your business plan profit and loss statement. Ensure that all the details in the document are relevant and necessary.
  • You have to be knowledgeable of the guidelines and regulations that are formulated by governing bodies in your country. Some business plan profit and loss statement specifications are country-specific, which is why you have to always be up to date regarding changes or updates about the particular matter.
  • Mind that there is a need for business plan profit and loss statements that your company have developed in different periods of accounting to be compared with one another. This is to identify the level of growth of your business based on the differences seen in your profit and loss statements.

Ensure the reliability and accuracy of the details that are going to be seen by your target audience in the business plan profit and loss statement. With the basic knowledge about the development of business plan profit and loss statement as well as the references that we have put together in this post, you can already easily create your own profit and loss statement. What are you waiting for? Try to develop a profit and loss statement now.

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Key Financial Metrics for Your Business Plan

Posted september 6, 2018 by noah parsons.

the key elements of a financial statement

Digging into your business’s financials can feel a bit like eating your fruits and vegetables, but what’s good for your business’s health is good for you.

When you’re putting a business plan together, the financial plan can feel like the most intimidating part. If you’re like most business owners, you probably didn’t go to business school or have a degree in accounting. 

That’s O.K. This article will explain everything that you need to include in your financial plan so you get off to a good start.

All business plans, whether you’re just starting a business or building a plan for an existing business, should include the following:

Profit and loss statement, cash flow statement, balance sheet, sales forecast, personnel plan.

  • and maybe some business ratios and/or a break-even analysis

Even if you’re in the very beginning stages of your business, these financial statements can still work for you.

The good news is that they don’t have to be difficult to create or hard to understand. With just a few educated guesses about how much you might sell and what your expenses will be, you’ll be well on your way to creating a complete financial plan.

A profit and loss statement is essentially an explanation of how your business made a profit (or incurred a loss) over a certain period of time. It’s a table that lists all of your revenue streams and all of your expenses—typically for a three-month period—and lists at the very bottom the total amount of net profit or loss.

This is a financial statement that goes by a few different names—profit and loss statement, income statement, pro forma income statement, P&L (short for “profit and loss”)—but no matter what you call it, it’s an essential report and very important to understand.

business plan profit and loss

There are different formats for profit and loss statements, depending on the type of business you’re in and the structure of your business (nonprofit, LLC, C-Corp, etc.).

A typical profit and loss statement should include:

  • Your revenue (also called sales) 
  • Your “cost of sale” or “cost of goods sold” (COGS)—keep in mind, some types of companies, such as a services firm, may not have COGS
  • Your gross margin , which is your revenue less your COGS

These three components (revenue, COGS, and gross margin) are the backbone of your business model —i.e., how you make money.

You’ll also list your operating expenses, which are the expenses associated with running your business that aren’t incurred directly by making a sale. They’re the fixed expenses that don’t fluctuate depending on the strength or weakness of your revenue in a given month—think rent, utilities, and insurance.

Your gross margin less your operating expenses will give you your operating income:

Gross Margin – Operating Expenses = Operating Income

Depending on how you classify some of your expenses, your operating income will typically be equivalent to your “earnings before interest, taxes, depreciation, and amortization” (EBITDA)—basically, how much money you made in profit before you take your accounting and tax obligations into consideration. This is also called your “profit before interest and taxes,” gross profit, and “contribution to overhead”—many names, but they all refer to the same number.

Your so-called “bottom line”—officially, your net income, which is found at the very end (or, bottom line) of your profit and loss statement—is your EBITDA less the “ITDA.” Just subtract your expenses for interest, taxes, depreciation, and amortization from your EBITDA, and you have your net income:

Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income

For further reading on profit and loss statements (a.k.a., income statements), including an example of what a profit and loss statement actually looks like, check out “ How to Read and Analyze an Income Statement.”  And if you want to start building your own, download our free Income Statement Example .

Free profit and loss income statement download

A cash flow statement (also called a “statement of cash flows”) is an explanation of how much cash your business brought in, how much cash it paid out, and what its ending cash balance was, typically per-month.

That might sound like sales, expenses, and profits, but it’s not.

Consider this: What happens when you send out an invoice to a client, but they don’t pay it by the due date ? What happens when you pay your own bills late, or early? These kinds of things aren’t reflected in your profit and loss statement, but they are explained in your cash flow statement.

Your cash flow statement is just as important as your profit and loss statement. Businesses run on cash—there are no two ways around it.

Without a thorough understanding of how much cash you have, where your cash is coming from, where it’s going, and on what schedule, you’re going to have a hard time running a healthy business. And without the cash flow statement, which lays that information out neatly for lenders and investors, you’re not going to be able to raise funds. No business plan is complete without a cash flow plan.

The cash flow statement helps you understand the difference between what your profit and loss statement reports as income—your profit—and what your actual cash position is.

It is possible to be extremely profitable and still not have enough cash to pay your expenses and keep your business afloat, and it is also possible to be unprofitable but still have enough cash on hand to keep the doors open for several months and buy yourself time to turn things around—that’s why this financial statement is so important to understand.

business plan profit and loss

How cash versus accrual accounting affects the cash flow statement

There are two methods of accounting—the cash method and the accrual method.

The cash method means that you just account for your sales and expenses as they happen, without worrying about matching up the expenses that are related to a particular sale or vice versa.

The accrual method means that you account for your sales and expenses at the same time—if you got a big preorder for a new product, for example, you’d wait to account for all of your preorder sales revenue until you’d actually started manufacturing and delivering the product. Matching revenue with the related expenses is what’s referred to as “the matching principle,” and is the basis of accrual accounting.

If you use the cash method of accounting in your business, your cash flow statement isn’t going to be very different from what you see in your profit and loss statement. That might seem like it makes things simpler, but I actually advise against it. I think that the accrual method of accounting gives you the best sense of how your business operates, and that you should consider switching to it if you aren’t using it already.

For the best sense of how your business operates, you should consider switching to accrual accounting if you aren’t using it already.

Here’s why: Let’s say you operate a summer camp business. You might receive payment from a camper in March, several months before camp actually starts in July—using the accrual method, you wouldn’t recognize the revenue until you’ve performed the service, so both the revenue and the expenses for the camp would be accounted for in the month of July.

With the cash method, you would have recognized the revenue back in March, but all of the expenses in July, which would have made it look like you were profitable in all of the months leading up to the camp, but unprofitable during the month that camp actually took place.

Cash accounting can get a little unwieldy when it comes time to evaluate how profitable an event or product was, and can make it harder to really understand the ins and outs of your business operations. For the best look at how your business works, accrual accounting is the way to go.

Your balance sheet is a snapshot of your business’s financial position—at a particular moment in time, how are you doing? How much cash do you have in the bank, how much do your customers owe you, and how much do you owe your vendors?

The balance sheet is standardized, and consists of three types of accounts:

  • Assets (accounts receivable, money in the bank, inventory, etc.)
  • Liabilities (accounts payable, credit card balances, loan repayments, etc.)
  • Equity (for most small businesses, this is just the owner’s equity, but it could include investors’ shares, retained earnings, stock proceeds, etc.)

It’s called a balance sheet because it’s an equation that needs to balance out:

Assets = Liabilities + Equity

The total of your liabilities plus your total equity always equals the total of your assets.

At the end of the accounting year, your total profit or loss adds to or subtracts from your retained earnings (a component of your equity). That makes your retained earnings your business’s cumulative profit and loss since the business’s inception.

However, if you are a sole proprietor or other pass-through tax entity, “retained earnings” doesn’t really apply to you—your retained earnings will always equal zero, as all profits and losses are passed through to the owners and not rolled over or retained like they are in a corporation.

business plan profit and loss

If you’d like more help creating your balance sheet, check out our free downloadable Balance Sheet Template .

The sales forecast is exactly what it sounds like: your projections, or forecast, of what you think you will sell in a given period (typically, a year to three years). Your sales forecast is an incredibly important part of your business plan, especially when lenders or investors are involved, and should be an ongoing part of your business planning process.

Your sales forecast should be an ongoing part of your business planning process.

You should create a forecast that is consistent with the sales number you use in your profit and loss statement. In fact, in our business planning software , LivePlan, the sales forecast auto-fills the profit and loss statement.

business plan profit and loss

There isn’t a one-size-fits-all kind of sales forecast—every business will have different needs. How you segment and organize your forecast depends on what kind of business you have and how thoroughly you want to track your sales.

Some helpful questions to ask yourself are:

  • How many customers do you anticipate?
  • How much will you charge them?
  • How often will you charge them?

Your sales forecast can be as detailed as you want it to be, or you can simplify your forecast by summarizing it. However you choose to do a sales forecast, you should definitely have one.

Generally, you’ll want to break down your sales forecast into segments that are helpful to you for planning and marketing purposes. If you own a restaurant, for example, you’d probably want to separate your forecasts for dinner and lunch sales; if you own a gym, it might be helpful to differentiate between single memberships, family memberships, club shop sales, and extra services like personal training sessions. If you want to get really specific, you might even break your forecast down by product, with a separate line for every product you sell.

Along with each segment of forecasted sales, you’ll want to include that segment’s “cost of goods sold” (COGS). The difference between your forecasted revenue and your forecasted COGS is your forecasted gross margin .

The importance of the personnel plan depends largely on the type of business you have. If you are a sole proprietor with no employees, this might not be that important and could be summarized in a sentence of two. But if you are a larger business with high labor costs, you should spend the time necessary to figure out how your personnel affects your business.

Think of the personnel plan as a justification of each team member’s necessity to the business.

If you create a personnel plan, it should include a description of each member of your management team, explaining what they bring to the table in terms of training, expertise, and product or market knowledge. If you’re writing a business plan to present to lenders or investors, you could think of this as a justification of each team member’s necessity to the business, and a justification of their salary (and/or equity share, if applicable). This would fall in the company overview section of your business plan.

You can also choose to use this section to list entire departments if that is a better fit for your business and the intentions you have for your business plan . There’s no rule that says you have to list only individual members of the management team.

This is also where you would list team members or departments that you’ve budgeted for but haven’t hired yet. Describe who your ideal candidate(s) is/are, and justify your budgeted salary range(s).

Additional calculations you might find useful:

Business ratios.

If you have your profit and loss statement, your cash flow statement, and your balance sheet, you have all the numbers you need to calculate the standard business ratios . These ratios aren’t necessary to include in a business plan—especially for an internal plan—but knowing some key ratios is almost always a good idea.

You’d probably want some profitability ratios, like:

  • Gross margin
  • Return on sales
  • Return on assets
  • Return on investment

And you’d probably want some liquidity ratios, such as:

  • Debt-to-equity
  • Current ratio
  • Working capital

Of these, the most common ratios used by business owners and requested by bankers are probably gross margin, return on investment (ROI), and debt-to-equity.

Break-even analysis

Your break-even analysis is a calculation of how much you will need to sell in order to “break-even” (i.e., how much you will need to sell in order to pay for all of your expenses).

Consider a restaurant: It has to be open, with the tables set and the menus printed and with the bartender and all of the cooks and servers working, in order to make even one sale. But if it only sold one dinner, the restaurant would be operating at a loss—even a $50 meal isn’t going to cover the night’s utility bills. So the restaurant owner might use a break-even analysis to get an idea of how many meals the restaurant needs to sell on a given night in order to cover its expenses.

In determining your break-even point, you’ll need to figure out the contribution margin of what you’re selling. In the case of a restaurant, the contribution margin will be the price of the meal less any associated costs. For example, the customer pays $50 for the meal. The food costs are $10 and the wages paid to prepare and serve the meal are $15. Your contribution margin is $25 ($50 – $10 – $15 = $25).

Using this model you can determine how high your sales revenue needs to be in order for you to break even. If your monthly fixed costs are $5,000 and you average a 50 percent contribution margin (like in our example with the restaurant), you’ll need to have sales of $10,000 in order to break even.

Your financial plan might feel overwhelming when you get started, but the truth is that this section of your business plan is absolutely essential to understand.

Even if you end up outsourcing your bookkeeping and regular financial analysis to an accounting firm, you—the business owner—should be able to read and understand these documents and make decisions based on what you learn from them. Using a business dashboard tool can help, so you’re not wading through spreadsheets to put your figures on the important details.

If you create and present financial statements that all work together to tell the story of your business, and if you can answer questions about where your numbers are coming from, your chances of securing funding from investors or lenders are much higher.

Further resources:

For more business financial concepts made simple, check out these articles on cash burn rate ,  direct costs ,  net profit ,  operating margin ,  accounts payable ,  accounts receivable ,  cash flow ,  profit and loss statement ,  balance sheet , and  expense budgeting .

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  • 11.4 The Business Plan
  • Introduction
  • 1.1 Entrepreneurship Today
  • 1.2 Entrepreneurial Vision and Goals
  • 1.3 The Entrepreneurial Mindset
  • Review Questions
  • Discussion Questions
  • Case Questions
  • Suggested Resources
  • 2.1 Overview of the Entrepreneurial Journey
  • 2.2 The Process of Becoming an Entrepreneur
  • 2.3 Entrepreneurial Pathways
  • 2.4 Frameworks to Inform Your Entrepreneurial Path
  • 3.1 Ethical and Legal Issues in Entrepreneurship
  • 3.2 Corporate Social Responsibility and Social Entrepreneurship
  • 3.3 Developing a Workplace Culture of Ethical Excellence and Accountability
  • 4.1 Tools for Creativity and Innovation
  • 4.2 Creativity, Innovation, and Invention: How They Differ
  • 4.3 Developing Ideas, Innovations, and Inventions
  • 5.1 Entrepreneurial Opportunity
  • 5.2 Researching Potential Business Opportunities
  • 5.3 Competitive Analysis
  • 6.1 Problem Solving to Find Entrepreneurial Solutions
  • 6.2 Creative Problem-Solving Process
  • 6.3 Design Thinking
  • 6.4 Lean Processes
  • 7.1 Clarifying Your Vision, Mission, and Goals
  • 7.2 Sharing Your Entrepreneurial Story
  • 7.3 Developing Pitches for Various Audiences and Goals
  • 7.4 Protecting Your Idea and Polishing the Pitch through Feedback
  • 7.5 Reality Check: Contests and Competitions
  • 8.1 Entrepreneurial Marketing and the Marketing Mix
  • 8.2 Market Research, Market Opportunity Recognition, and Target Market
  • 8.3 Marketing Techniques and Tools for Entrepreneurs
  • 8.4 Entrepreneurial Branding
  • 8.5 Marketing Strategy and the Marketing Plan
  • 8.6 Sales and Customer Service
  • 9.1 Overview of Entrepreneurial Finance and Accounting Strategies
  • 9.2 Special Funding Strategies
  • 9.3 Accounting Basics for Entrepreneurs
  • 9.4 Developing Startup Financial Statements and Projections
  • 10.1 Launching the Imperfect Business: Lean Startup
  • 10.2 Why Early Failure Can Lead to Success Later
  • 10.3 The Challenging Truth about Business Ownership
  • 10.4 Managing, Following, and Adjusting the Initial Plan
  • 10.5 Growth: Signs, Pains, and Cautions
  • 11.1 Avoiding the “Field of Dreams” Approach
  • 11.2 Designing the Business Model
  • 11.3 Conducting a Feasibility Analysis
  • 12.1 Building and Connecting to Networks
  • 12.2 Building the Entrepreneurial Dream Team
  • 12.3 Designing a Startup Operational Plan
  • 13.1 Business Structures: Overview of Legal and Tax Considerations
  • 13.2 Corporations
  • 13.3 Partnerships and Joint Ventures
  • 13.4 Limited Liability Companies
  • 13.5 Sole Proprietorships
  • 13.6 Additional Considerations: Capital Acquisition, Business Domicile, and Technology
  • 13.7 Mitigating and Managing Risks
  • 14.1 Types of Resources
  • 14.2 Using the PEST Framework to Assess Resource Needs
  • 14.3 Managing Resources over the Venture Life Cycle
  • 15.1 Launching Your Venture
  • 15.2 Making Difficult Business Decisions in Response to Challenges
  • 15.3 Seeking Help or Support
  • 15.4 Now What? Serving as a Mentor, Consultant, or Champion
  • 15.5 Reflections: Documenting the Journey
  • A | Suggested Resources

Learning Objectives

By the end of this section, you will be able to:

  • Describe the different purposes of a business plan
  • Describe and develop the components of a brief business plan
  • Describe and develop the components of a full business plan

Unlike the brief or lean formats introduced so far, the business plan is a formal document used for the long-range planning of a company’s operation. It typically includes background information, financial information, and a summary of the business. Investors nearly always request a formal business plan because it is an integral part of their evaluation of whether to invest in a company. Although nothing in business is permanent, a business plan typically has components that are more “set in stone” than a business model canvas , which is more commonly used as a first step in the planning process and throughout the early stages of a nascent business. A business plan is likely to describe the business and industry, market strategies, sales potential, and competitive analysis, as well as the company’s long-term goals and objectives. An in-depth formal business plan would follow at later stages after various iterations to business model canvases. The business plan usually projects financial data over a three-year period and is typically required by banks or other investors to secure funding. The business plan is a roadmap for the company to follow over multiple years.

Some entrepreneurs prefer to use the canvas process instead of the business plan, whereas others use a shorter version of the business plan, submitting it to investors after several iterations. There are also entrepreneurs who use the business plan earlier in the entrepreneurial process, either preceding or concurrently with a canvas. For instance, Chris Guillebeau has a one-page business plan template in his book The $100 Startup . 48 His version is basically an extension of a napkin sketch without the detail of a full business plan. As you progress, you can also consider a brief business plan (about two pages)—if you want to support a rapid business launch—and/or a standard business plan.

As with many aspects of entrepreneurship, there are no clear hard and fast rules to achieving entrepreneurial success. You may encounter different people who want different things (canvas, summary, full business plan), and you also have flexibility in following whatever tool works best for you. Like the canvas, the various versions of the business plan are tools that will aid you in your entrepreneurial endeavor.

Business Plan Overview

Most business plans have several distinct sections ( Figure 11.16 ). The business plan can range from a few pages to twenty-five pages or more, depending on the purpose and the intended audience. For our discussion, we’ll describe a brief business plan and a standard business plan. If you are able to successfully design a business model canvas, then you will have the structure for developing a clear business plan that you can submit for financial consideration.

Both types of business plans aim at providing a picture and roadmap to follow from conception to creation. If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept.

The full business plan is aimed at executing the vision concept, dealing with the proverbial devil in the details. Developing a full business plan will assist those of you who need a more detailed and structured roadmap, or those of you with little to no background in business. The business planning process includes the business model, a feasibility analysis, and a full business plan, which we will discuss later in this section. Next, we explore how a business plan can meet several different needs.

Purposes of a Business Plan

A business plan can serve many different purposes—some internal, others external. As we discussed previously, you can use a business plan as an internal early planning device, an extension of a napkin sketch, and as a follow-up to one of the canvas tools. A business plan can be an organizational roadmap , that is, an internal planning tool and working plan that you can apply to your business in order to reach your desired goals over the course of several years. The business plan should be written by the owners of the venture, since it forces a firsthand examination of the business operations and allows them to focus on areas that need improvement.

Refer to the business venture throughout the document. Generally speaking, a business plan should not be written in the first person.

A major external purpose for the business plan is as an investment tool that outlines financial projections, becoming a document designed to attract investors. In many instances, a business plan can complement a formal investor’s pitch. In this context, the business plan is a presentation plan, intended for an outside audience that may or may not be familiar with your industry, your business, and your competitors.

You can also use your business plan as a contingency plan by outlining some “what-if” scenarios and exploring how you might respond if these scenarios unfold. Pretty Young Professional launched in November 2010 as an online resource to guide an emerging generation of female leaders. The site focused on recent female college graduates and current students searching for professional roles and those in their first professional roles. It was founded by four friends who were coworkers at the global consultancy firm McKinsey. But after positions and equity were decided among them, fundamental differences of opinion about the direction of the business emerged between two factions, according to the cofounder and former CEO Kathryn Minshew . “I think, naively, we assumed that if we kicked the can down the road on some of those things, we’d be able to sort them out,” Minshew said. Minshew went on to found a different professional site, The Muse , and took much of the editorial team of Pretty Young Professional with her. 49 Whereas greater planning potentially could have prevented the early demise of Pretty Young Professional, a change in planning led to overnight success for Joshua Esnard and The Cut Buddy team. Esnard invented and patented the plastic hair template that he was selling online out of his Fort Lauderdale garage while working a full-time job at Broward College and running a side business. Esnard had hundreds of boxes of Cut Buddies sitting in his home when he changed his marketing plan to enlist companies specializing in making videos go viral. It worked so well that a promotional video for the product garnered 8 million views in hours. The Cut Buddy sold over 4,000 products in a few hours when Esnard only had hundreds remaining. Demand greatly exceeded his supply, so Esnard had to scramble to increase manufacturing and offered customers two-for-one deals to make up for delays. This led to selling 55,000 units, generating $700,000 in sales in 2017. 50 After appearing on Shark Tank and landing a deal with Daymond John that gave the “shark” a 20-percent equity stake in return for $300,000, The Cut Buddy has added new distribution channels to include retail sales along with online commerce. Changing one aspect of a business plan—the marketing plan—yielded success for The Cut Buddy.

Link to Learning

Watch this video of Cut Buddy’s founder, Joshua Esnard, telling his company’s story to learn more.

If you opt for the brief business plan, you will focus primarily on articulating a big-picture overview of your business concept. This version is used to interest potential investors, employees, and other stakeholders, and will include a financial summary “box,” but it must have a disclaimer, and the founder/entrepreneur may need to have the people who receive it sign a nondisclosure agreement (NDA) . The full business plan is aimed at executing the vision concept, providing supporting details, and would be required by financial institutions and others as they formally become stakeholders in the venture. Both are aimed at providing a picture and roadmap to go from conception to creation.

Types of Business Plans

The brief business plan is similar to an extended executive summary from the full business plan. This concise document provides a broad overview of your entrepreneurial concept, your team members, how and why you will execute on your plans, and why you are the ones to do so. You can think of a brief business plan as a scene setter or—since we began this chapter with a film reference—as a trailer to the full movie. The brief business plan is the commercial equivalent to a trailer for Field of Dreams , whereas the full plan is the full-length movie equivalent.

Brief Business Plan or Executive Summary

As the name implies, the brief business plan or executive summary summarizes key elements of the entire business plan, such as the business concept, financial features, and current business position. The executive summary version of the business plan is your opportunity to broadly articulate the overall concept and vision of the company for yourself, for prospective investors, and for current and future employees.

A typical executive summary is generally no longer than a page, but because the brief business plan is essentially an extended executive summary, the executive summary section is vital. This is the “ask” to an investor. You should begin by clearly stating what you are asking for in the summary.

In the business concept phase, you’ll describe the business, its product, and its markets. Describe the customer segment it serves and why your company will hold a competitive advantage. This section may align roughly with the customer segments and value-proposition segments of a canvas.

Next, highlight the important financial features, including sales, profits, cash flows, and return on investment. Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation. You can explore a feasibility study and financial projections in more depth in the formal business plan. Here, you want to focus on the big picture of your numbers and what they mean.

The current business position section can furnish relevant information about you and your team members and the company at large. This is your opportunity to tell the story of how you formed the company, to describe its legal status (form of operation), and to list the principal players. In one part of the extended executive summary, you can cover your reasons for starting the business: Here is an opportunity to clearly define the needs you think you can meet and perhaps get into the pains and gains of customers. You also can provide a summary of the overall strategic direction in which you intend to take the company. Describe the company’s mission, vision, goals and objectives, overall business model, and value proposition.

Rice University’s Student Business Plan Competition, one of the largest and overall best-regarded graduate school business-plan competitions (see Telling Your Entrepreneurial Story and Pitching the Idea ), requires an executive summary of up to five pages to apply. 51 , 52 Its suggested sections are shown in Table 11.2 .

Are You Ready?

Create a brief business plan.

Fill out a canvas of your choosing for a well-known startup: Uber, Netflix, Dropbox, Etsy, Airbnb, Bird/Lime, Warby Parker, or any of the companies featured throughout this chapter or one of your choice. Then create a brief business plan for that business. See if you can find a version of the company’s actual executive summary, business plan, or canvas. Compare and contrast your vision with what the company has articulated.

  • These companies are well established but is there a component of what you charted that you would advise the company to change to ensure future viability?
  • Map out a contingency plan for a “what-if” scenario if one key aspect of the company or the environment it operates in were drastically is altered?

Full Business Plan

Even full business plans can vary in length, scale, and scope. Rice University sets a ten-page cap on business plans submitted for the full competition. The IndUS Entrepreneurs , one of the largest global networks of entrepreneurs, also holds business plan competitions for students through its Tie Young Entrepreneurs program. In contrast, business plans submitted for that competition can usually be up to twenty-five pages. These are just two examples. Some components may differ slightly; common elements are typically found in a formal business plan outline. The next section will provide sample components of a full business plan for a fictional business.

Executive Summary

The executive summary should provide an overview of your business with key points and issues. Because the summary is intended to summarize the entire document, it is most helpful to write this section last, even though it comes first in sequence. The writing in this section should be especially concise. Readers should be able to understand your needs and capabilities at first glance. The section should tell the reader what you want and your “ask” should be explicitly stated in the summary.

Describe your business, its product or service, and the intended customers. Explain what will be sold, who it will be sold to, and what competitive advantages the business has. Table 11.3 shows a sample executive summary for the fictional company La Vida Lola.

Business Description

This section describes the industry, your product, and the business and success factors. It should provide a current outlook as well as future trends and developments. You also should address your company’s mission, vision, goals, and objectives. Summarize your overall strategic direction, your reasons for starting the business, a description of your products and services, your business model, and your company’s value proposition. Consider including the Standard Industrial Classification/North American Industry Classification System (SIC/NAICS) code to specify the industry and insure correct identification. The industry extends beyond where the business is located and operates, and should include national and global dynamics. Table 11.4 shows a sample business description for La Vida Lola.

Industry Analysis and Market Strategies

Here you should define your market in terms of size, structure, growth prospects, trends, and sales potential. You’ll want to include your TAM and forecast the SAM . (Both these terms are discussed in Conducting a Feasibility Analysis .) This is a place to address market segmentation strategies by geography, customer attributes, or product orientation. Describe your positioning relative to your competitors’ in terms of pricing, distribution, promotion plan, and sales potential. Table 11.5 shows an example industry analysis and market strategy for La Vida Lola.

Competitive Analysis

The competitive analysis is a statement of the business strategy as it relates to the competition. You want to be able to identify who are your major competitors and assess what are their market shares, markets served, strategies employed, and expected response to entry? You likely want to conduct a classic SWOT analysis (Strengths Weaknesses Opportunities Threats) and complete a competitive-strength grid or competitive matrix. Outline your company’s competitive strengths relative to those of the competition in regard to product, distribution, pricing, promotion, and advertising. What are your company’s competitive advantages and their likely impacts on its success? The key is to construct it properly for the relevant features/benefits (by weight, according to customers) and how the startup compares to incumbents. The competitive matrix should show clearly how and why the startup has a clear (if not currently measurable) competitive advantage. Some common features in the example include price, benefits, quality, type of features, locations, and distribution/sales. Sample templates are shown in Figure 11.17 and Figure 11.18 . A competitive analysis helps you create a marketing strategy that will identify assets or skills that your competitors are lacking so you can plan to fill those gaps, giving you a distinct competitive advantage. When creating a competitor analysis, it is important to focus on the key features and elements that matter to customers, rather than focusing too heavily on the entrepreneur’s idea and desires.

Operations and Management Plan

In this section, outline how you will manage your company. Describe its organizational structure. Here you can address the form of ownership and, if warranted, include an organizational chart/structure. Highlight the backgrounds, experiences, qualifications, areas of expertise, and roles of members of the management team. This is also the place to mention any other stakeholders, such as a board of directors or advisory board(s), and their relevant relationship to the founder, experience and value to help make the venture successful, and professional service firms providing management support, such as accounting services and legal counsel.

Table 11.6 shows a sample operations and management plan for La Vida Lola.

Marketing Plan

Here you should outline and describe an effective overall marketing strategy for your venture, providing details regarding pricing, promotion, advertising, distribution, media usage, public relations, and a digital presence. Fully describe your sales management plan and the composition of your sales force, along with a comprehensive and detailed budget for the marketing plan. Table 11.7 shows a sample marketing plan for La Vida Lola.

Financial Plan

A financial plan seeks to forecast revenue and expenses; project a financial narrative; and estimate project costs, valuations, and cash flow projections. This section should present an accurate, realistic, and achievable financial plan for your venture (see Entrepreneurial Finance and Accounting for detailed discussions about conducting these projections). Include sales forecasts and income projections, pro forma financial statements ( Building the Entrepreneurial Dream Team , a breakeven analysis, and a capital budget. Identify your possible sources of financing (discussed in Conducting a Feasibility Analysis ). Figure 11.19 shows a template of cash-flow needs for La Vida Lola.

Entrepreneur In Action

Laughing man coffee.

Hugh Jackman ( Figure 11.20 ) may best be known for portraying a comic-book superhero who used his mutant abilities to protect the world from villains. But the Wolverine actor is also working to make the planet a better place for real, not through adamantium claws but through social entrepreneurship.

A love of java jolted Jackman into action in 2009, when he traveled to Ethiopia with a Christian humanitarian group to shoot a documentary about the impact of fair-trade certification on coffee growers there. He decided to launch a business and follow in the footsteps of the late Paul Newman, another famous actor turned philanthropist via food ventures.

Jackman launched Laughing Man Coffee two years later; he sold the line to Keurig in 2015. One Laughing Man Coffee café in New York continues to operate independently, investing its proceeds into charitable programs that support better housing, health, and educational initiatives within fair-trade farming communities. 55 Although the New York location is the only café, the coffee brand is still distributed, with Keurig donating an undisclosed portion of Laughing Man proceeds to those causes (whereas Jackman donates all his profits). The company initially donated its profits to World Vision, the Christian humanitarian group Jackman accompanied in 2009. In 2017, it created the Laughing Man Foundation to be more active with its money management and distribution.

  • You be the entrepreneur. If you were Jackman, would you have sold the company to Keurig? Why or why not?
  • Would you have started the Laughing Man Foundation?
  • What else can Jackman do to aid fair-trade practices for coffee growers?

What Can You Do?

Textbooks for change.

Founded in 2014, Textbooks for Change uses a cross-compensation model, in which one customer segment pays for a product or service, and the profit from that revenue is used to provide the same product or service to another, underserved segment. Textbooks for Change partners with student organizations to collect used college textbooks, some of which are re-sold while others are donated to students in need at underserved universities across the globe. The organization has reused or recycled 250,000 textbooks, providing 220,000 students with access through seven campus partners in East Africa. This B-corp social enterprise tackles a problem and offers a solution that is directly relevant to college students like yourself. Have you observed a problem on your college campus or other campuses that is not being served properly? Could it result in a social enterprise?

Work It Out

Franchisee set out.

A franchisee of East Coast Wings, a chain with dozens of restaurants in the United States, has decided to part ways with the chain. The new store will feature the same basic sports-bar-and-restaurant concept and serve the same basic foods: chicken wings, burgers, sandwiches, and the like. The new restaurant can’t rely on the same distributors and suppliers. A new business plan is needed.

  • What steps should the new restaurant take to create a new business plan?
  • Should it attempt to serve the same customers? Why or why not?

This New York Times video, “An Unlikely Business Plan,” describes entrepreneurial resurgence in Detroit, Michigan.

  • 48 Chris Guillebeau. The $100 Startup: Reinvent the Way You Make a Living, Do What You Love, and Create a New Future . New York: Crown Business/Random House, 2012.
  • 49 Jonathan Chan. “What These 4 Startup Case Studies Can Teach You about Failure.” Foundr.com . July 12, 2015. https://foundr.com/4-startup-case-studies-failure/
  • 50 Amy Feldman. “Inventor of the Cut Buddy Paid YouTubers to Spark Sales. He Wasn’t Ready for a Video to Go Viral.” Forbes. February 15, 2017. https://www.forbes.com/sites/forbestreptalks/2017/02/15/inventor-of-the-cut-buddy-paid-youtubers-to-spark-sales-he-wasnt-ready-for-a-video-to-go-viral/#3eb540ce798a
  • 51 Jennifer Post. “National Business Plan Competitions for Entrepreneurs.” Business News Daily . August 30, 2018. https://www.businessnewsdaily.com/6902-business-plan-competitions-entrepreneurs.html
  • 52 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition . March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf
  • 53 “Rice Business Plan Competition, Eligibility Criteria and How to Apply.” Rice Business Plan Competition. March 2020. https://rbpc.rice.edu/sites/g/files/bxs806/f/2020%20RBPC%20Eligibility%20Criteria%20and%20How%20to%20Apply_23Oct19.pdf; Based on 2019 RBPC Competition Rules and Format April 4–6, 2019. https://rbpc.rice.edu/sites/g/files/bxs806/f/2019-RBPC-Competition-Rules%20-Format.pdf
  • 54 Foodstart. http://foodstart.com
  • 55 “Hugh Jackman Journey to Starting a Social Enterprise Coffee Company.” Giving Compass. April 8, 2018. https://givingcompass.org/article/hugh-jackman-journey-to-starting-a-social-enterprise-coffee-company/

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What is the P&L (Profit & Loss)?

Definition of p&l.

The income statement is a table listing all the company's income and expenses to deduct the result for a given fiscal year.

The income statement is part of the company's financial statements, together with the balance sheet, cash flow statement and notes.

Example of a projected income statement

Here is an example of a projected income statement from our business plan creation application.

profit and loss

Profit and Loss Analysis

The income statement focuses on the past or future profitability of the company.

The analysis of the profit and loss account focuses on 3 main factors:

  • the company's growth
  • the cost structure
  • profitability

Ideally the company should be able to grow its turnover and profit.

The analysis of revenue growth helps to determine whether the company is able both to gain customers and to pass on cost increases to its customers.

For example, growth below inflation is a negative signal to banks and investors, as it suggests that the company is mature and that its profitability will gradually decline.

Cost structure

An analysis of the profit and loss account over several years generally provides a good view of the cost structure.

The financial analyst will seek to identify the breakdown of costs between fixed and variable costs in order to estimate the company's operational risk.

He or she will also analyse the distribution of expenses between the various items and the evolution of each item in order to form an opinion on the proper management of the company.

Profitability

The difference between income and expenses shows a profit or loss in the income statement.

The analysis of a company's profitability is carried out at several levels:

  • at the operational level
  • at the global level
  • in a dynamic way

At the operational level the key is to have a positive and increasing EBITDA. If the EBITDA is negative then the company is selling at a loss and is heading for disaster. If EBITDA is negative, then the company's profitability deteriorates, affecting its ability to invest and meet its financial obligations.

At the global level, the focus is on the company's net result. If this is positive, then there is a good chance that the company's profitability will be sufficient to enable it to maintain its productive equipment and meet its financial commitments.

The analysis is carried out dynamically using ratios in order to analyse the trend over several years.

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  • What Is a P&L Statement?
  • How P&L Statements Work
  • Comparing P&L Statements
  • Types of P&L Statements
  • P&L Example
  • Why are profit and loss (P&L) statements important?
  • P&L Statement vs. Balance Sheet
  • Are P&L Statements Required?
  • Corporate Finance
  • Financial Statements

Profit and Loss Statement Meaning, Importance, Types, and Examples

business plan profit and loss

Yarilet Perez is an experienced multimedia journalist and fact-checker with a Master of Science in Journalism. She has worked in multiple cities covering breaking news, politics, education, and more. Her expertise is in personal finance and investing, and real estate.

business plan profit and loss

Dennis Madamba / Investopedia

What Is a Profit and Loss (P&L) Statement?

Profit and loss (P&L) statement refers to a financial statement that summarizes the revenues , costs, and expenses incurred during a specified period, usually a quarter or fiscal year . These records provide information about a company’s ability or inability to generate profit by increasing revenue, reducing costs, or both. P&L statements are often presented on a cash or accrual basis. Company managers and investors use P&L statements to analyze the financial health of a company.

Key Takeaways

  • The profit and loss (P&L) statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.
  • The P&L statement is one of three financial statements that every public company issues quarterly and annually, along with the balance sheet and the cash flow statement.
  • When used together, the P&L statement, balance sheet, and cash flow statement provide an in-depth look at a company’s overall financial performance.
  • Statements are prepared using the cash method or accrual method of accounting.
  • It is important to compare P&L statements from different accounting periods, as any changes over time become more meaningful than the numbers themselves.

How Profit and Loss (P&L) Statements Work

The P&L statement is one of three financial statements that every public company issues on a quarterly and annual basis, along with the balance sheet and the cash flow statement . It is often the most popular and common financial statement in a business plan, as it shows how much profit or loss was generated by a business.

P&L statements are also referred to as a(n):

  • Statement of profit and loss
  • Statement of operations
  • Statement of financial results or income
  • Earnings statement
  • Expense statement
  • Income statement

The P&L or income statement, like the cash flow statement, shows changes in accounts over a set period of time. The balance sheet, on the other hand, is a snapshot, showing what the company owns and owes at a single moment. It is important to compare the income statement with the cash flow statement since, under the accrual method of accounting , a company can log revenues and expenses before cash changes hands.

This document follows a general form as seen in the example below. It begins with an entry for revenue, known as the top line, and subtracts the costs of doing business, including the cost of goods sold, operating expenses, tax expenses, and interest expenses. The difference, known as the bottom line, is net income , also referred to as profit or earnings.

P&L management refers to how a company handles its P&L statement through revenue and cost management.

Grace Kim / Investopedia

Comparing P&L Statements

It is important to compare income statements from different accounting periods. The reason behind this is that any changes in revenues, operating costs, research and development (R&D) spending, and net earnings over time are more meaningful than the numbers themselves. For example, a company’s revenues may grow on a steady basis, but its expenses might grow at a much faster rate.

Comparing one company’s P&L statement with another in the same industry that is similar in size can further help investors evaluate the financial well-being of a company. For example, doing so might reveal that one company is more efficient at managing expenses and has better growth potential than the other.  

Revenues and expenses for nonprofit organizations are generally tracked in a financial report called the statement of activities . As such, this report is sometimes called a statement of financial activities or a statement of support.

Types of Profit and Loss (P&L) Statements

As noted above, a P&L statement may be prepared in one of two ways. These are the cash method and the accrual method .

Cash method

The cash method , which is also called the cash accounting method, is only used when cash goes in and out of the business. This is a very simple method that only accounts for cash received or paid. A business records transactions as revenue whenever cash is received and as liabilities whenever cash is used to pay any bills or liabilities. This method is commonly used by smaller companies as well as people who want to manage their personal finances.

Accrual method

The accrual accounting method records revenue as it is earned. This means that a company using the accrual method accounts for money that it expects to receive in the future. For instance, a company that delivers a product or service to its customer records the revenue on its P&L statement, even though it hasn’t yet received payment. Similarly, liabilities are accounted for even when the company hasn’t yet paid for any expenses .

You can find many templates to create a personal or business P&L statement online for free.

Example of a Profit and Loss (P&L) Statement

Below is the income or P&L statement for 2020 and 2021 for hypothetical company Butterfly Industries. All of the figures are in U.S. dollar (USD) millions except per-share data:

You can use the income statement to calculate several metrics, including the gross profit margin , the operating profit margin , the net profit margin , and the operating ratio . Together with the balance sheet and the cash flow statement, the income statement provides an in-depth look at a company’s financial performance.

Why are profit and loss (P&L) statements important?

A profit and loss (P&L) statement is one of the three types of financial statements prepared by companies. The other two are the balance sheet and the cash flow statement. The purpose of the P&L statement is to show a company’s revenues and expenditures over a specified period of time, usually over one fiscal year.

Investors and analysts can use this information to assess the profitability of the company, often combining this information with insights from the other two financial statements. For instance, an investor might calculate a company’s return on equity (ROE) by comparing its net income (as shown on the P&L) to its level of shareholder equity (as shown on the balance sheet).

What is the difference between a P&L statement and a balance sheet?

A company’s P&L statement shows its income, expenditures, and profitability over a period of time. The balance sheet, on the other hand, provides a snapshot of its assets and liabilities on a certain date. The balance sheet is typically presented as of the last day of the company’s fiscal year. Investors use the balance sheet to understand the financial strength of the company, comparing the amount and quality of its assets against its liabilities.

Are all companies required to prepare P&L statements?

Publicly traded companies are required to prepare P&L statements and must file their financial statements with the U.S. Securities and Exchange Commission (SEC) so that they can be scrutinized by investors, analysts, and regulators. Companies must comply with a set of rules and guidelines known as generally accepted accounting principles (GAAP) when they prepare these statements.

Private companies, on the other hand, are not necessarily required to comply with GAAP. Some smaller companies, though, may even not prepare formal financial statements at all.

The Bottom Line

A P&L statement summarizes the revenues, costs, and expenses of a company during a specific period. It is one of three financial statements that public companies issue quarterly and annually—the other two are a balance sheet and a cash flow statement. Investors and analysts use financial statements to assess the financial health of a company and its growth potential.

U.S. Small Business Administration. “ Financial Management for a Small Business ,” Pages 15–16.

Cornell University, Legal Information Institute. “ Accrual Method of Accounting .”

Internal Revenue Service. “ Publication 538: Accounting Periods and Methods ,” Pages 8–10.

Internal Revenue Service. “ Publication 538: Accounting Periods and Methods ,” Pages 10–13.

business plan profit and loss

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Start » startup, business plan financials: 3 statements to include.

The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.

 Businessman reviews financial documents

If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.

[Read: How to Write a One-Page Business Plan ]

What are business plan financials?

Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.

Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Sections to include in your business plan financials

Here are the three statements to include in the finance section of your business plan:

Profit and loss statement

A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.

Common items to include on a profit and loss statement :

  • Revenue: total sales and refunds, including any money gained from selling property or equipment.
  • Expenditures: total expenses.
  • Cost of goods sold (COGS): the cost of making products, including materials and time.
  • Gross margin: revenue minus COGS.
  • Operational expenditures (OPEX): the cost of running your business, including paying employees, rent, equipment and travel expenses.
  • Depreciation: any loss of value over time, such as with equipment.
  • Earnings before tax (EBT): revenue minus COGS, OPEX, interest, loan payments and depreciation.
  • Profit: revenue minus all of your expenses.

Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.

[Read: Top Small Business Planning Strategies ]

A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Balance sheet

A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).

On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.

On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).

Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.

Cash flow statement

A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.

Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.

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Home > Finance > Accounting

How to Effectively Manage Your Company’s Profit and Loss

Kylie McQuarrie

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Profit and loss (P&L) management is the process of determining how to cut costs and increase revenue .

You can start that process by looking at your business’s profit and loss statement (aka income statement). Since your income statement breaks down your business’s costs and gains, it offers key insights into growing your revenue and upping your business’s chance of success.

If you want to know more about how exactly a business income statement can help you manage profit and loss, keep reading—we explore the meaning of profit and loss, how to read a profit and loss report, and why P&L management is so important to small businesses.

See Business.org's top picks for the best accounting software.

P&L management table of contents

  • What is P&L management?

What is a P&L statement?

What information is on a p&l statement.

  • How can you use your P&L statement to manage your profit and loss?

The best financial tools to prepare a P&L statement

The takeaway, what is profit and loss management.

Are you currently using your profit and loss statement to make informed decisions about your business's finances? Then you're already doing profit and loss management—nice work!

At its most basic, profit and loss management simply means using your P&L statement to make informed financial decisions about your business. Notably, profit and loss management doesn’t just mean you should measure how much you make—it also means looking at how much money you lose to expenses.

When you chart your profit and loss, you can identify gaps in your savings and expenses, defusing fiscal problems before they become major losses.

Another way to up your business's chances of success? Claim the Employee Retention Credit on your taxes and get up to $26,000 back per employee during COVID-19. 

If you're searching for accounting software that's user-friendly, full of smart features, and scales with your business, Quickbooks is a great option.

Creating an income statement is the crucial first step for managing profit and loss.

A profit and loss statement breaks down your business’s profits and losses by category to show your net profit or net loss. That number also represents your income, which is why a P&L statement is also called an income statement. It lays out your gains and losses clearly and should give you some clear starting points for where to trim costs.

Alongside the balance sheet and cash flow statement , your P&L statement is one of the three most important financial documents in your repertoire. Why? Because comparing the three statements gives you an accurate depiction of how your business stands financially at any given moment.

If you’re planning to take out a small-business loan and your lender requires you to submit a business plan (most do), you’ll need to include a profit and loss statement. From the very start of your business, you’ll need to make a profit and loss statement and continue to look at it frequently. It pays, literally, to get familiar with creating, reading, and interpreting income statements as soon as possible.

Wondering how often to create and check a key financial statement like an income statement? You should absolutely generate an annual P&L statement to chart your profits and losses over the last fiscal year, but generating monthly statements will give you better insights into how your business is performing month over month (or week over week—creating a P&L statement each week honestly isn’t a bad idea).

business plan profit and loss

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A profit and loss statement is divided into two main sections: a revenue section and an expenses section. You’ll subtract expenses from revenue to calculate your net profit, aka your bottom line. Typically, your P&L statement will show your profits and losses over a specific period of time, determined by you (for instance, over a year, a month, or a week.)

Depending on the accounting software or template you use, your P&L statement could have more or less detail than the categories we list. Still, all P&L statements should include the same information in roughly the same order. (If you want a more thorough breakdown of the categories we list below, check out our P&L statement how-to guide .)

Revenue (gross income)

Revenue—aka gross income—is the money you make by selling services or goods . When calculating revenue, make sure to list all sources of business income. That could include not just sales but also interest earned on investments.

Direct costs

Direct costs are expenses that stem directly from creating your product or delivering your services . Put a little differently, any expense connected to the company’s products or services is a direct cost. If you sell a product rather than a service, direct costs are usually referred to as the cost of goods sold, or COGS .

Cost of goods sold = beginning inventory + purchases – ending inventory

Gross profit

Your gross profit is the amount of money left after subtracting direct costs from your gross income .

You might also see a gross profit margin on your income statement, which is the gross profit expressed as a percentage. A high gross profit margin is a good indicator (though not the only indicator) of a business’s financial health.

If your direct costs are higher than your gross income, you’ll see a gross loss here rather than a gross profit. Hopefully that won’t happen—but if it does, remember that your P&L sheet gives you helpful information on how to turn that loss into a profit. For instance, you might discover that you aren’t charging enough per product to cover the cost of goods sold, and upping your prices by just a bit could start to turn your loss around.

Gross profit = Revenue – COGS

Expenses refer to any costs besides the direct costs of producing a product. Typically, these expenses fall into one of the following categories:

  • Operating expenses (OPEX, or operating costs), or ongoing and necessary costs that keep your business up and running. Rent, monthly utility fees, equipment maintenance, and advertising expenses are typical examples of OPEX.
  • Non-operating expenses , or less frequent costs that aren’t essential to your business’s day-to-day operations. Paying interest on a loan, hiring a lawyer, or paying for movers would all count as non-operating expenses that impact your bottom line.

Depending on how complex your business is and what accounting software you use, you might list all expenses line by line instead of distinguishing between OPEX and other expenses. Alternatively, you might break down your expenses into more detailed categories, such as administrative expenses and overhead expenses.

Once you’ve totalled your gross profit and expenses, you can finally calculate your net profit. If you see a positive number in this category, your business is profitable—that’s great news! If you see a net loss instead, you don’t need to despair right away. Instead, meet with a CPA to implement strategies for cutting costs and increasing revenue.

Net profit = Gross profit – expenses

Want help figuring out your business's profit and loss? Accounting software can automate the process and give you valuable insights into your company's financial health. Enter some basic information about your business and we'll send you up to five quotes with personalized accounting software recommendations.

How should you use your P&L statement to manage your profit and loss?

Creating a good P&L statement is just one part of managing your company’s profit and loss. Once you’ve built your detailed income statement, take these steps to sort out how profitable your company is versus how profitable it could be:

  • Compare your current P&L statement with past statements. Has anything changed drastically? If so, can you identify how or why?
  • Meet with a CPA, accountant, or financial analyst to get help identifying areas of improvement.
  • Continue to keep detailed records of your company’s profits and losses so you can create new, accurate P&L statements every month or quarter.

Any cloud-based accounting software worth its salt should include a P&L statement. QuickBooks Online is our top pick for accounting software with stellar reports: every QuickBooks Online plan includes several P&L reports , including quarterly summaries, month-by-month reports, and profit and loss by customer or by percentage of total income.

Alternatively, you can also download a free P&L template to use with your favorite spreadsheet or word processing software:

  • The Small Business Association offers a free, basic P&L template through its website.
  • Microsoft Excel costs a monthly fee, but Excel’s P&L templates are free to download.
  • Google Sheets, which is completely free, also offers a free P&L template .

You can also use free accounting software complete with income statements. Wave Accounting is our favorite tool for financial reports, but there are plenty of other free accounting software options out there.

And of course, if you have an in-house accountant or bookkeeper, they should be able to draw up a P&L statement for you in no time flat.

And remember that if you use software or a free template to generate a P&L statement, you should always meet with an accountant to review your finances, P&L statement included. They can give you individualized advice on your business’s profits and losses, including how to apply the information you get from your P&L statement.

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Strategic P&L management guided by a detailed income statement will help you keep earnings positive and minimize expenses. Creating P&L statements frequently, meeting with a CPA to review findings, and implementing changes as needed are the first steps in knowing where your business stands financially—and making necessary changes to increase profits while decreasing costs.

Want help from a qualified bookkeeper or accountant who can take tasks like preparing profit and loss statements off your plate? See our piece on the best virtual and outsourced accounting solutions to see if one of our recommendations meets your needs.

Related reading

  • How to Read a Financial Statement
  • The Best Tools for Creating a Financial Statement
  • The 6 Most Useful Financial Documents for Small Businesses
  • 21 Tips for Getting Invoices Paid on Time

Profit and loss FAQ

Profit and loss management, or P&L management, is the process of creating profit and loss statements to analyze your company’s overall revenue and expenses. The P&L statement gives you crucial information about where to cut out expenses, how to increase revenue, and whether your business is profitable or not.

A profit and loss statement lists your company’s income and subtracts expenses (including costs of goods sold, operating expenses, and non-operating expenses) to find your net income .

Improving your company’s profits and reducing losses starts with creating P&L statements. Once you’ve done that, you should compare statements from different time periods to understand sales trends, analyze costs, and determine if you can cut out certain expenses while increasing sources of revenue. You should always meet with a CPA to discuss structural changes that will up your company’s profitability.

A P&L statement (aka income statement) overviews how a business is performing by showing revenue, direct costs, and business expenses. In contrast, a balance sheet summarizes all of a business’s long-term assets, liabilities, and shareholders’ equity. Finally, a cash flow statement shows where your cash is coming from and where it’s going. Along with showing money earned from sales, it should show the money you earn from investing and trade opportunities plus cash from bank loans or other financing options. It also details cash outflow to help you determine if you’re spending more than you’re earning.

Taken together, income statements, balance sheets, and cash flow statements give you a detailed look at your business’s financial health. If you want to see how your business is doing overall, it’s a good idea to work with all three.

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Free Small Business Profit and Loss Templates

By Andy Marker | February 15, 2022

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We’ve compiled a comprehensive list of profit and loss templates for small businesses. Each template is free, printable, and ready to download and edit. 

Included on this page, you will find a basic profit and loss template , a sample annual profit and loss statement , a profit and loss dashboard , and profit and loss templates organized by small business type.

General Profit and Loss Templates for Small Business

Simple profit and loss statement.

Simple Profit and Loss Statement Template

Download Simple Profit and Loss Statement   Microsoft Excel | Microsoft Word | Adobe PDF

This simple profit and loss statement template is available in multiple formats and includes sections for calculating business income and expenses within a customizable time frame. Example expenses include staff wages, office rent, utilities, insurance costs, supplies, and taxes. Use this template to create an itemized list of business expenses and review total net income.

Monthly Profit and Loss Template

Monthly Profit and Loss Template

Download Monthly Profit and Loss Template — Microsoft Excel

Create a 12-month profit and loss statement that tracks monthly and year-to-date expenses and revenue. After entering your data into the spreadsheet, the template will calculate totals and generate graphs that display gross profit, total expenses, and profit or loss over time. This template includes sample line items with common small business expenses and revenue sources. For added convenience, the spreadsheet groups expenses into categories, such as employee payroll, banking, overhead expenses, vehicle costs, and taxes.

Annual Profit and Loss Template Sample

Annual Profit and Loss Template Sample

Download Annual Profit and Loss Template Sample — Microsoft Excel

Use this template to create a pro forma income statement for annual financial projections or to complete a year-over-year profit and loss analysis. For increased efficiency, this template includes sample data for a small business, including gross sales, cost of sales, operating expenses, and net income before and after taxes.

Quarterly Profit and Loss Statement

Quarterly Profit and Loss Statement Template

Download Quarterly Profit and Loss Statement — Microsoft Excel

This blank profit and loss statement allows you to record quarterly financial data over one year. The template layout is simple and intuitive, including sections for tracking business revenue, expenses, and tax information. Enter your company name, income sources, discounts or other allowances, business expenses, and tax details. The template will automatically calculate subtotals and total net income.

Profit and Loss Dashboard Template

Profit and Loss Dashboard Template

Download Profit and Loss Dashboard Template — Microsoft Excel

Oversee monthly profit and loss information for your small business with this dashboard template. The charts included on the template display total income, cost of goods sold, gross profit, total expenses, earnings before interest and taxes (EBIT), and net revenue before and after taxes. Use this template to compare financial details between previous and current months and give stakeholders a snapshot of monthly income performance.

Profit and Loss Templates by Business Type

Self-employed profit and loss template.

Self Employed Profit and Loss Template

Download Self-Employed Profit and Loss Template — Microsoft Excel

Designed for independent contractors and other self-employed individuals, this profit and loss statement includes fields for recording income from multiple clients, tax costs, and business expenses. After you enter income received from each client, the template subtracts expenses and taxes to calculate net income. Use the example list of expenses to tailor your profit and loss statement to your small business.

Hotel Profit and Loss Statement

Hotel Profit and Loss Statement Template

Download Hotel Profit and Loss Statement Microsoft Excel | Google Sheets

This template uses a basic profit and loss statement format to help you track hotel revenue and expenses. Assign each item a reference number and record all income sources and expenses in the appropriate fields. By doing so, you can closely monitor all profits and losses for your hotel or other hospitality business.

Daycare Profit and Loss Statement

Daycare Profit and Loss Statement Template

Download Daycare Profit and Loss Statement Microsoft Excel | Microsoft Word | Adobe PDF

Use this template to track finances for your daycare business. Record income information, such as payments for classes, monthly fees, and donations. In addition, record expenses, such as food, art supplies, toys, rent, utilities, and wages. The template automatically calculates net profit or loss for whatever time period you choose.

Rental Property Profit and Loss Template

Rental Property Profit and Loss Template

Download Rental Property Profit and Loss Template — Microsoft Excel

Compile financial information for multiple rental properties into one profit and loss statement. This comprehensive template includes sections for recording property details, deposits received, and rental income. List ongoing expenses, such as landscaping and property management fees, for each month of the year. Track one-time expenses separately, listing the date, total amount paid, and other details. Real estate agents can modify this template to create a profit and loss statement template for their small business.

Restaurant Profit and Loss Template

Restaurant Profit and Loss Template

Download Restaurant Profit and Loss Template — Microsoft Excel

This restaurant profit and loss statement provides example sales items, labor costs, and other common restaurant revenue sources and expenses. Common revenue sources include food and beverage purchases and merchandise, while common expenses cover marketing costs, utilities, appliance repairs, depreciation, and administrative and labor costs. For simplicity, the template breaks down labor expenses into salaries, hourly wages, and employee benefits. The template also calculates total sales, gross profit, total expenses, and net income.

Construction Profit and Loss Template

Construction Profit and Loss Template

Download Construction Profit and Loss Template Microsoft Excel | Google Sheets

View monthly and annual financial data with this construction profit and loss spreadsheet. Enter your monthly revenue for each client or project and list job costs such as labor, materials, equipment rentals, and dump fees. Add overhead expenses, from advertising and professional memberships to vehicle costs and small tool purchases. This template automatically calculates monthly totals and clearly displays profit and loss information for easy reference.

Salon Profit and Loss Template

Salon Profit and Loss Template

Download Salon Profit and Loss Template Microsoft Excel | Google Sheets

This profit and loss template includes common hair salon sales items and expenses. Determine gross profit by totalling your revenue from salon services, retail sales, and rental income and subtracting the total cost of expenses. For clarity and accuracy, itemize all salon expenses, including marketing costs, utilities, subscriptions, business licenses, insurance costs, and all other operating expenses. Download the Excel spreadsheet for automatically calculated totals, or choose the PDF form to perform manual calculations.

Landscaping Business Profit and Loss Template

Landscaping Profit and Loss Template

Download Landscaping Business Profit and Loss Template Microsoft Excel | Google Sheets

Using a simple, 12-month spreadsheet format, this template allows you to track the gross profit and net income for a landscaping business. Enter all revenue from landscaping clients, along with business expenses such as labor, fuel, equipment rentals, tools, vehicle expenses, and advertising costs. This template calculates subtotals and net profits or losses for each month and for the year.

What Is a Profit and Loss Template?

Also referred to as an income statement template or statement of operations template , a profit and loss template calculates business profits or losses by subtracting costs and expenses from income.  

Small business owners can use profit and loss statements to measure business performance on a monthly, quarterly, or annual basis. Along with other financial documents, such as balance sheets and cash flow statements , a profit and loss statement template helps to facilitate accurate financial tracking and to predict future business performance. 

To learn how to create a profit and loss statement in Excel with step-by-step instructions, visit our tutorial.

For related financial templates, see our collection of free small business budget templates and expense templates.

Control Profit and Loss for Your Small Business with Smartsheet

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  • Costs and revenue management

Why is a profit and loss forecast important for businesses?

Arjun Ruparelia

Financial planning and forecasting play a crucial role in ensuring the success and sustainability of a company. Without a clear understanding of future revenues and expenses, companies may struggle to make informed decisions, allocate resources effectively, and ensure sustainable growth. A powerful tool to tackle these challenges is the profit and loss forecast.

This article aims to shed light on the significance of a profit and loss forecast and its calculation and provide examples to help you understand its practical application.

Profit and loss forecast: definition

A profit and loss forecast is the projection of a company's anticipated financial performance over a specific period . By analysing historical data, market trends, and economic indicators, this forecasting tool empowers business owners to anticipate revenue, assess expenses, and determine the net profit or loss they may face.

This tool helps in forecasting profitability and plays a crucial role in cash flow management and liquidity planning . Providing insights into anticipated revenues and expenses, it enables businesses to proactively manage their cash flow , meet financial obligations, optimise resource allocation, and maintain a healthy financial position.

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What are the elements of a profit and loss statement?

The profit and loss (P&L) statement, or income statement , summarises the following key elements or performance metrics of the company’s operations:

  • Revenue/Sales: It is the total amount of money generated from the sale of goods, services, or other operating activities during a specific period.
  • Cost of Goods Sold (COGS): These include the costs directly attributable to the production or acquisition of goods or services, such as raw material purchases, labour costs, and manufacturing overheads.
  • Gross Profit : It is the difference between sales and COGS and represents the profit made before accounting for operating expenses.
  • Operating Expenses: These encompass the non-production costs associated with running the daily operations, namely rent, utilities, and administrative costs.
  • Operating Profit: It is the difference between gross profit and operating expenses and is representative of the profitability of the business’ core operations.
  • Other Income and Expenses: These include gains and losses from the sale of assets, interest income/expense, taxes, etc. and aren’t pivotal to a company’s core.
  • Net Income/ Loss: It represents the overall profit or loss earned by the company after accounting for all expenses.

See also: Balance Sheet Forecast: How-To

Profit and loss forecast example

Let us consider an example to understand a profit and loss forecast.

Sarah's Bakery, a popular local bakery, wants to evaluate the financial viability of expanding its product line to include gluten-free and vegan options. They create a profit and loss forecast specifically for the new product line.

The forecast includes projected revenues from the sale of gluten-free and vegan products, costs associated with ingredients, packaging, marketing, and additional staff. By analysing the forecast, Sarah's Bakery can determine if the expansion will generate sufficient profit and help them meet customer demands.

Profit forecast vs Profit and Loss forecast

In business terminology, a profit forecast and a profit and loss forecast are essentially the same thing. The terms "profit forecast" and "profit and loss forecast" are often used interchangeably to refer to a financial projection that estimates the expected profit or loss for a given period, typically a year.

What is the difference between profit and loss forecast and forecast?

The primary difference between a profit and loss forecast and a general forecast lies in their focus and scope .

A profit and loss forecast specifically centres around the financial performance of a business. This forecast is prepared using common accounting standards and is tailored to provide insights into the financial health and profitability of the company. It considers factors such as sales projections, production costs, operating expenses, and other revenue-generating or cost-incurring activities.

In comparison, a general forecast typically encompasses a broader range of predictions beyond financial aspects. It may include projections related to market trends, customer behaviour, industry growth, technological advancements, or any other relevant factors that impact the overall business environment.

A general forecast aims to provide a comprehensive outlook to guide decision-making, strategic planning, and resource allocation across various aspects of the business.

Cash flow forecast vs profit and loss forecast

While both cash flow forecasts and profit and loss forecasts are important financial tools for projecting business performance, they vary greatly as they are concerned with different aspects of the company.

A cash flow forecast provides a precise view of the company’s net cash position by projecting cash inflows and outflows over a specific period, including cash sales, customer collections, loan repayments, and more. It helps assess the company's liquidity and working capital management from a short-term perspective, typically on a weekly or monthly basis. By proactively identifying any cash shortfalls , it enables firms to timely meet their obligations.

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Conversely, a profit and loss forecast estimates the firm’s revenues and expenses , and how much profit it has earned over a certain period of time. It is concerned with the company’s operational performance and provides insights into the company’s cost management and profitability. Unlike a cash flow forecast, it has a relatively long-term perspective.

How do you calculate profit and loss forecast?

To calculate a profit and loss forecast, you need to consider several key elements. Here's a step-by-step guide on how to calculate it:

Gather historical data: Collect relevant financial information from past periods, such as sales revenue, cost of goods sold, operating expenses, and other income or expenses. This data will serve as a foundation for estimating future performance.

Define the forecast period: Determine the timeframe for the forecast, whether it's monthly, quarterly, or annually. The length of the period may vary depending on the business's needs and industry.

Project revenue: Estimate the expected sales revenue for each period based on market trends, historical sales data, anticipated changes in customer demand, pricing strategies, and any upcoming product launches or promotions.

Estimate cost of goods sold (COGS): Calculate the direct costs associated with producing goods or services, including raw materials, labour, manufacturing expenses, and any other variable costs. This estimation should align with the projected sales volume.

Factor in operating expenses: Consider all operating expenses, such as rent, utilities, salaries, marketing expenses, insurance, and other administrative costs. Ensure they are accurately accounted for in the forecast.

Calculate gross profit: Subtract the projected COGS from the estimated revenue to determine the gross profit for each period. This represents the profitability before accounting for operating expenses.

Deduct operating expenses: Subtract the operating expenses from the gross profit to calculate the operating profit (also known as earnings before interest and taxes, or EBIT). This figure reflects the profitability after accounting for all operating costs.

Include non-operating income and expenses: Factor in any non-operating income (e.g., interest income, investment gains) or expenses (e.g., interest expense, foreign exchange losses) that may impact the overall profit or loss.

Calculate net profit/loss: Subtract non-operating expenses from non-operating income and add the result to the operating profit. This will provide the net profit or loss for each period.

Review and adjust: Evaluate the forecasted figures, considering any external factors like market conditions, regulatory changes, or business-specific circumstances. Revise the forecast as needed to ensure its accuracy and relevance.

What is the profit and loss forecasting model?

Various templates and software are available to simplify the process of creating a profit and loss forecast. These tools provide predefined categories and formulas that enable you to easily input your revenue and expense figures. An example of a template is given below.

How do you make a profit and loss forecast in Excel?

Microsoft Excel is a powerful tool that can be used to forecast profit and loss. Here's a step-by-step guide on how to forecast profit and loss using Excel:

Create a new Excel worksheet and set up a table with columns for Year, and rows for Revenue, Cost of Goods Sold, Operating Expenses, Other Income, and Net Profit. Alternatively, you can use the template given above.

Enter the forecasted revenue for each year in the Revenue row.

Calculate the cost of goods sold by entering the projected costs associated with production or delivery in the Cost of Goods Sold row.

Enter the forecasted operating expenses in the Operating Expenses row.

Include any other sources of income in the Other Income row.

Calculate the net profit by subtracting the total cost of goods sold and operating expenses from the revenue and adding any other income.

Format the table as desired and review the forecast for accuracy.

Refine the forecast by adjusting inputs and assumptions as needed.

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Is profit and loss forecast included in a business plan of a new business?

Yes, a profit and loss (P&L) forecast is an essential component of a business plan and is included in its financial section. Serving as a financial roadmap, a P&L forecast demonstrates the new business’ profitability and viability to financial experts, which helps attract potential investors and lenders. It can also be used to benchmark the company’s actual performance after it becomes operational.

How to use your profit and loss forecast to make informed decisions and plan for the future

To gain actionable insights and make informed decisions based on your profit and loss forecast, take the following steps:

  • Continuously monitor actual performance and compare it against the P&L forecast to identify variances.
  • Analyse the causes of variation, including assumptions underlying revenue and expense projections, material changes in market and economic trends, and pricing effects.
  • Conduct scenario planning and sensitivity analysis to understand the impact of differing circumstances on business performance and to better anticipate risks and opportunities.
  • Follow it up by tweaking and realigning your financial targets with strategic goals for informed decision-making.

What are the main factors that affect a business's profit and loss forecast

There are several factors that impact a business’ P&L forecast, such as sales volume, pricing strategies, and cost structure. External factors like market conditions, economic events, seasonality, and the regulatory environment also affect financial forecasts.

How to monitor your actual performance against your forecast and adjust accordingly

Businesses must establish key profitability metrics, such as gross profit ratio, EBITDA margin, and net profit margin, to effectively monitor their actual financial performance. These figures are then compared against P&L projections to identify variances. For instance, if the operating profit falls short of expectations, analyse whether it is related to lower sales or higher costs and accordingly take corrective action. Eventually, the underlying assumptions can be changed in the event of permanent changes in the circumstances facing the business.

What are the limitations and challenges of profit and loss forecasting?

Profit and loss forecasting involves certain limitations, such as data limitations, complexities in assumptions, and a lack of control over external factors, which may result in projections being less than accurate. Businesses must also be cautious of data integration challenges and the role of human biases when reviewing P&L forecasts. The ultimate aim should be to strike a balance between accuracy and adaptability to make more informed decisions.

Key Takeaways:

Profit and loss forecasting is a resourceful tool to help you make informed decisions, allocate the limited resources effectively, and ensure your business's sustainable growth.

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Lean Business Planning

Profit and Loss (with LivePlan)

“Business is all about solving people’s problems – at a profit.”

― Paul Marsden

The Standard Profit and Loss (Income Statement)

LivePlan Specific Version

  • 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 Projected Profit

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 Profit and Loss

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.

LivePlan Chart Net Profit

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Small Business Trends

What is a profit and loss statement.

what is a profit and loss statement

If you buy something through our links, we may earn money from our affiliate partners. Learn more .

“What is a profit and loss statement?” you might ask. As a business owner, understanding how effectively you’re generating profits is crucial. A Profit and Loss (P&L) statement is a key financial report that provides insights into your business’s financial performance over a given period. This report is one of the three main financial statements.

A p l statement is an important way to see what’s happening financially over time. This is a great way to keep track of your small business financials .

What Exactly is a Profit and Loss Statement?

This kind of financial statement looks at the overall profit by summarizing expenses, costs, and revenues. It’s a snapshot of a company’s financial health and business performance.

A p l statement is issued quarterly and annually. Businesses should know how a balance sheet works too. They are added along with a cash flow statement. Put together, all three are a popular way to show profit and loss in a business plan.

Wondering “What is a cash flow statement?” Here’s some info.

what is a profit and loss statement

  • Read More: what is an income statement

Why a Profit and Loss Statement is So Important for a Small Business

Every business, big or small, thrives on accurate financial information. The Profit and Loss (P&L) statement, often termed as the income statement, serves as a comprehensive financial snapshot, detailing a business’s financial activities over a defined period.

Small Business Deals

Here are a few of the reasons you need these statements:

For Making Good Decisions

A P&L statement offers more than just numbers; it offers clarity. By juxtaposing a company’s total expenses against its revenue, it provides an empirical foundation for decision-making.

By referring to this statement, entrepreneurs eliminate guesswork, allowing them to steer their businesses based on tangible data, ensuring a more informed and effective strategy.

For Attracting Investors

Potential investors don’t merely rely on words; they rely on evidence of financial stability and growth potential. A P&L statement showcases a company’s financial prowess over a delineated period.

Whether it’s a mature public company seeking more investment or a budding startup hoping to woo investors, a well-maintained P&L statement speaks volumes about the company’s economic health.

For Forecasting Expenses

A sound business strategy isn’t solely about revenue; it’s also about judiciously managing expenses. Categories such as rent, salaries, operational costs, and periodic expenses like equipment purchases shape a business’s financial landscape.

With the insights from a P&L statement, companies can predict these costs, helping in budgeting and financial planning for the subsequent year.

For Projecting Revenue

While expenses determine outflow, revenue is all about inflow. The top-line figures in a P&L statement shed light on a business’s revenue generation capability.

This data provides a clearer picture of market demand, sales strategies’ effectiveness, and overall profitability, guiding businesses in setting realistic revenue targets.

For Getting Taxes Ready

Taxation is an inevitable part of business operations. An up-to-date P&L statement simplifies the tax preparation process.

By offering a consolidated view of all financial transactions, revenues, and expenses, it ensures that businesses remain compliant, avoiding potential legal complications and benefiting from applicable deductions and credits.

what is a profit and loss statement

  • Read More: what is a cash flow statement

Types of Profit and Loss Statements (P&L)

Small business owners need to be aware of p l statement types. The following can show up on a final report.

  • Accrual Method – Accrual method accounts are for bigger businesses. They record the cash flow they are hoping to pay out or receive.
  • Cash Method – This is better for smaller businesses. It’s a simple p l statement. Just the cash going in and out gets recorded. This accounting method doesn’t include anything in the future.

The cash basis is more direct. The accrual basis for the same period adds in revenue and expenses.

Main Components of a Profit and Loss Statement

This kind of financial report can be viewed by the internal revenue service. And it shows the net profit so you can make plans.

Add these components so it’s accurate. If you’re looking for more info on the subject, maybe ask “what is a balance sheet?” Here’s a good resource.

1. Operating Expenses

Operating expenses encompass those costs that aren’t directly linked to the creation or delivery of goods and services but are essential for running the business.

They’re the backbone costs of keeping the company’s doors open. Examples include administrative salaries, office supplies, rent, utilities, and perhaps more intangible costs like advertising or marketing.

While not directly tied to production, they’re indispensable in keeping the operations smooth. For instance, sales commissions, while not part of the manufacturing cost, are crucial for driving sales and revenue.

2. Sales or Revenue

Sales or revenue is the lifeblood of any business, representing the total income generated from selling goods or providing services over a specified period. It’s a primary metric in assessing a company’s financial health.

Without sufficient revenue, a business cannot hope to cover its operating expenses, let alone turn a profit. Regularly monitoring this metric helps businesses gauge their market presence and the effectiveness of their sales strategies.

3. Net Profit

Commonly referred to as the bottom line, net profit offers a clear picture of a business’s financial health. It’s determined by deducting all expenses, including operational and production costs, from the total revenue.

This figure reveals the actual profitability of the company, indicating whether the business is financially sustainable in the long run.

4. Gross Profit

Gross profit emerges when you subtract the cost of goods sold (COGS) from total revenue. It represents the profit made after considering the direct costs of production but before accounting for operating expenses.

Expressing gross profit as a percentage, or the gross margin, provides insights into the efficiency of the production process.

5. Cost of Goods Sold

COGS reflects the cumulative total of all direct costs associated with manufacturing a product or delivering a service. This includes raw materials, labor costs associated with production, and factory overheads.

Monitoring COGS is vital because it directly impacts both gross and net profit, influencing pricing strategies and overall profitability.

6. Fixed Expenses

Whether it’s a start-up, private entity, or a large public corporation, fixed expenses are a reality. These are consistent costs that don’t vary with the volume of production or sales.

Examples include rent for office space, salaries of permanent staff, insurance premiums, and consistent marketing campaigns. They form the base overheads that a business has to cover, regardless of its operational scale or profitability during a given period.

what is a profit and loss statement

Summary: Key Components of a Profit and Loss Statement

  • Read More: what is a balance sheet

Profit and Loss Statement Example

Sorting through items like a gross profit margin and net profit margin is easier with a template.

business plan profit and loss

This one is available from FreshBooks. It’s a free template to determine your net income.

A free profit and loss template can help you understand the process.

How to Create a Profit and Loss Statement

You can create one of these financial statements to find net income using these steps.

  • Gather The Info – An accurate profit and loss statement includes all the necessary information. Include receipts, credit card transactions, and invoices. Don’t forget to include items pertaining to expenses.
  • List The Sales – This part of the operating statement includes sales. This is different from what a balance sheet shows.
  • List The COGS – Then you subtract these from gross revenue. This provides the gross profit.
  • List The Expenses – Then subtract these from your gross margin in the fiscal year you are working on. Don’t forget non-operating expenses like interest payments on debt.
  • List Interest Expenses – And income taxes on net income. Then subtract that from the previous total.
  • Subtract amortization and depreciation

There’s a lot that goes into your own statement as a business person. Remember you can set the contents to expand the table feature to add rows . It’s an excellent feature when you’re putting together one of these financial reports.

what is a profit and loss statement

Analyzing a Profit and Loss Statement

To truly grasp the financial condition of a business, it’s not enough to merely read a profit and loss (P&L) statement. A thorough analysis is required.

Delving into the details and comparing various metrics provides an in-depth understanding of operational efficiency, profitability, and potential areas of improvement.

Net sales reflect the actual revenue brought in by the business after accounting for returns, allowances, and discounts.

It’s essential to recognize that in accrual accounting, these sales are recorded when a transaction is made, not necessarily when the cash is received. Consistently monitoring net sales can help pinpoint trends and assess the effectiveness of marketing and sales efforts.

Cost of Goods Sold

Regularly examining the Cost of Goods Sold (COGS) can uncover potential areas of cost savings. If COGS is increasing, it’s vital to ensure that sales prices are adjusted accordingly to maintain profitability.

This metric shows the direct costs associated with producing the goods sold by a business, offering insights into production efficiency.

Gross Margin

Often expressed as a percentage, the gross margin represents the percentage of total sales that exceed the COGS. By dividing gross profit by net sales, businesses can gauge their production efficiency.

It’s also beneficial to compare this percentage to industry peers to understand market competitiveness.

Seasonality

It’s crucial to recognize the impact of seasonal factors on a business’s financial performance.

Whether it’s the holiday rush for retailers or the summer peak for tourism, understanding these cyclic variations helps in planning inventory, staffing, and promotions. By acknowledging seasonality, businesses can better forecast and manage cash flows.

Operating Income

Operating income provides a snapshot of how much a company earns from its primary business activities, excluding other income sources and interest expenses.

By deducting operating expenses (like rent, utilities, and salaries) from gross profit, you get a clearer view of the business’s core profitability. This metric is pivotal for investors and stakeholders to assess the company’s operational health.

Implementing Effective Cost Management Strategies

Identifying cost reduction opportunities.

An essential aspect of enhancing business profitability is the meticulous management of expenses. Analyzing your Profit and Loss (P&L) statement can illuminate areas where costs can be curtailed without compromising the quality of goods or services.

Strategies may include renegotiating supplier contracts, optimizing inventory levels to prevent overstocking, and adopting energy-efficient practices to reduce utility costs.

By identifying these opportunities, businesses can maintain a competitive edge while boosting their bottom line.

  • Supplier Negotiation: Regularly review supplier contracts and seek opportunities to negotiate better terms. Bulk purchasing or long-term contracts can often lead to significant savings.
  • Inventory Management: Implement just-in-time (JIT) inventory practices to minimize holding costs and reduce the risk of obsolete stock.
  • Operational Efficiency: Invest in technology that automates repetitive tasks, reducing labor costs and increasing productivity.

Leveraging Technology for Financial Analysis

In today’s digital age, leveraging technology can provide businesses with deeper insights into their financial performance. Financial management software not only automates the creation of P&L statements but also offers analytical tools to dissect financial data effectively.

This enables businesses to forecast trends, identify profitability patterns, and make data-driven decisions to enhance financial health.

  • Financial Software Solutions: Utilize software like QuickBooks, Xero, or FreshBooks for real-time financial tracking and analysis.
  • Data Visualization Tools: Employ tools that offer data visualization to better understand financial metrics and trends.
  • Predictive Analytics: Advanced analytics can forecast future financial performance based on historical data, aiding in strategic planning.

Mastering Your Financial Narrative

Understanding and effectively managing a Profit and Loss (P&L) statement is crucial for any business aiming to thrive in a competitive marketplace.

By dissecting each component, from net sales to operating income, businesses can gain invaluable insights into their financial health and operational efficiency. Implementing cost management strategies and leveraging technology for financial analysis further empowers businesses to optimize their financial performance.

Embracing these practices not only enhances profitability but also prepares businesses to navigate the complexities of economic fluctuations with confidence. Remember, a P&L statement is not just a financial document; it’s a roadmap that guides strategic decisions and fosters sustainable growth.

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Entrepreneurs Gateway

Profit and Loss Statement: A Step-by-Step Guide

How to ensure your business stays profitable.

  • EntrepreneursGateway.com Team
  • November 4, 2018

business plan profit and loss

An Income Statement – sometimes also referred to as a Profit and Loss Statement – is an important tool for understanding how the expenses and revenue of businesses stack up .

In other words:

It can illustrate whether a business is profitable or not.

If someone refers to the ‘bottom line’ of a company, then what they are referring to is the very last line on the income statement.

This is the one that displays a company’s net profit and illustrates how profitable it is across a specific time frame (usually quarterly or yearly), once all the expenses have been paid for.

So, when people refer to ‘profit’ as in ‘profit and loss statements’ this is what they mean.

Loss occurs if the expenses outweigh the revenue. If a company is not profitable, then it runs at a loss.

Be aware that cash isn’t the same as profits !

You can read more about the difference between cash and profits by clicking on the link.

This article is part of the Business Planning Hub , where you’ll find lots of guides and resources to help you create the perfect business plan!

Table of Contents

Now that we’ve gone through a quick overview, let’s proceed with the juicy bits.

In this article, we will cover:

  • Why you need an Income Statement in your business plan
  • Breakdown of an Income Statement
  • Examples of Income Statements

Strap yourself in!

#1 Income Statements and Business Plans

It is vital that you include a projected income statement within you business plan.  

Whether it’s preparation for a physical document to present to investors, or an internal one so that the company can stay on track, expecting business to be profitable over a set period of time is essential.

Let me repeat this again…

(It’s that important!)

Including a projected income statement in your business plan is essential.

A business plan should include a financial section with:

  • A projected cash flow statement ,
  • A projected balance sheet ,
  • A projected income statement.

These are   all are must-haves!

Let’s now break it down line by line.

The top line of the profit and loss statement will illustrate the money coming in – e.g., sales revenue and should not Include any deductions.

This line is just as important as the bottom one , as all expenses and direct costs will be deducted from this number. 

Remember: The smaller the number, the smaller the expenses need to be.

business plan profit and loss

If you don’t have any cash flow at present and are simply writing the business plan document, then the financials will simply be an educated guess and what the following few years numbers will be.

Direct Costs:

This includes things such as how much it costs to manufacture the product or deliver the service.

You should not include items such as rent, but only things that are directly associated with the product that is being sold.

Gross Margin:

This is also referred to as ‘gross profit’, and refers to the difference between the direct costs and the revenue on the income statement.

business plan profit and loss

This figure is crucial as it shows two really important pieces of information, which are:

  • How much revenue is being channeled into direct costs
  • How much money is left to cover all other expenses of the company.

business plan profit and loss

You will know that a business is not profitable if the number after direct costs is lower than the total of the operating expenses.

Simple…

Operating Expenses:

In this section of your statement, you should list all operating expenses as line items.

This section doesn’t include the costs of sold goods.

Basically, what you need to take into consideration is all the other expenses the company has in order to keep running – such as payroll, rent, marketing, and utilities.

A tip to keep things simple:

Group items into expense categories, such as advertising costs or office supplies. This will make this section easier to write.

Operating Income:

This is also known as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA). 

business plan profit and loss

Some believe that this is the most reliable number in reflecting the profitability of a company.

business plan profit and loss

Produce a #Profit & #Loss Statement with the Ultimate Business Planning Guide! Tweet

Here you should include any interest the company is making on its loans. 

Depreciation and Amortization:

These expenses are connected with your assets both intangible and tangible. 

The understanding is that tangible assets will depreciate over time, whereas the value of intangible assets isn’t instant, so it is distributed or amortized over months or years.

business plan profit and loss

An example of this would be a patent or copyright.

This reflects either income tax paid or that is due. Some companies opt to put aside money to cover this expected expense.

Net Profit:

This is also referred to as either net earnings or net income, and is basically the bottom line . 

At a glance, this number will answer the question as to whether the company is in the red.

This number began at the top of the line with the revenue from sales – then everything else has been deducted from it. 

A negative number indicates that the business is running at a loss, meaning either the revenue is in a slump or the expenses are too high. Either way, this could mean that it is time to re-evaluate the strategy.

#2 Examples of Income Statements:

business plan profit and loss

Additional Resources:

Why not check out the following articles, and get even more help in writing the perfect plan to impress?

  • 5 Financial Plan (Must Haves) and how to write one
  • How to Do a Sales Forecast
  • How to Forecast Cash Flow
  • Building Your Balance Sheet
  • The Difference Between Cash and Profits
  • Profit and Loss Template [Free Download]
  • Cash Flow Template [Free Download]
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business plan profit and loss

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IMAGES

  1. √ Free 4+ Samples of Profit And Loss Projection For Business Plan

    business plan profit and loss

  2. 35+ Profit and Loss Statement Templates & Forms

    business plan profit and loss

  3. 11+ Business Plan Profit and Loss Template Examples

    business plan profit and loss

  4. Standard Business Plan Financials: Projected Profit and Loss

    business plan profit and loss

  5. 9+ Project Profit And Loss Template Excel

    business plan profit and loss

  6. 3-Month Profit & Loss Projection Template

    business plan profit and loss

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  6. Empowering Your Business's Future: Budget Planning and Business Planning strategies Unleashed

COMMENTS

  1. How to Write a Profit and Loss Statement

    A profit and loss statement helps you see exactly how money flows into your business, where you spend that revenue, and what adjustments you need to maximize profit. For example, you may discover that your cost of goods sold (COGS) is too high and needs to be reduced with a less expensive production option.

  2. Standard Business Plan Financials: Projected Profit and Loss

    The Profit and Loss, also called Income, is probably the most important and most common of the three essential projections in standard business plan financials

  3. How to Create a Profit and Loss Forecast

    An income statement, also called a profit and loss statement (or P&L), is a fundamental tool for understanding how the revenue and expenses of your business stack up. Simply put, it tells anyone at-a-glance if your business is profitable or not.

  4. How to Write the Financial Section of a Business Plan

    Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest ...

  5. 11+Business Plan Profit Loss

    With the usage of a business plan profit and loss statement, you can easily present how you transform your revenues into net income which is a great way to attract and/or update your business stakeholders as well as to ensure that your financial conditions can sustain your operations and support your future action plans.

  6. How to Create a Profit and Loss Statement: Step-By-Step

    Step 1: Calculate revenue The first step in creating a profit and loss statement is to calculate all the revenue your business has received. You can obtain current account balances from your...

  7. What is a Profit & Loss forecast and why is it important?

    The P&L statement is therefore one of the financial statements within the business plan's financial forecast. It shows the income generated by the company over one or more financial years, enabling you to quickly evaluate: the company's growth: i.e. the increase in its turnover

  8. Profit and Loss Statement (P&L)

    A profit and loss statement (P&L), or income statement or statement of operations, is a financial report that provides a summary of a company's revenues, expenses, and profits/losses over a given period of time. The P&L statement shows a company's ability to generate sales, manage expenses, and create profits.

  9. Key Financial Metrics for Your Business Plan

    A typical profit and loss statement should include: Your revenue (also called sales) Your "cost of sale" or "cost of goods sold" (COGS)—keep in mind, some types of companies, such as a services firm, may not have COGS. Your gross margin, which is your revenue less your COGS. These three components (revenue, COGS, and gross margin) are ...

  10. 11.4 The Business Plan

    Like the financial portion of a feasibility analysis, the financial analysis component of a business plan may typically include items like a twelve-month profit and loss projection, a three- or four-year profit and loss projection, a cash-flow projection, a projected balance sheet, and a breakeven calculation.

  11. What is the P&L (Profit & Loss)?

    What is the P&L (Profit & Loss)? Definition of P&L The income statement is a table listing all the company's income and expenses to deduct the result for a given fiscal year. The income statement is part of the company's financial statements, together with the balance sheet, cash flow statement and notes. Example of a projected income statement

  12. Profit and Loss Statement Meaning, Importance, Types, and Examples

    Profit and loss (P&L) statement refers to a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period, usually a quarter or fiscal year. These...

  13. Writing Business Plan Financials? Include These 3 Statements

    Here are the three statements to include in the finance section of your business plan: Profit and loss statement. A profit and loss statement, also known as an income statement, identifies your business's revenue (profit) and expenses (loss). This document describes your company's overall financial health in a given time period. While ...

  14. How to Best Manage Your Company's Profit and Loss

    At its most basic, profit and loss management simply means using your P&L statement to make informed financial decisions about your business. Notably, profit and loss management doesn't just mean you should measure how much you make—it also means looking at how much money you lose to expenses.

  15. Free Small Business Profit and Loss Templates

    Download Annual Profit and Loss Template Sample — Microsoft Excel. Use this template to create a pro forma income statement for annual financial projections or to complete a year-over-year profit and loss analysis. For increased efficiency, this template includes sample data for a small business, including gross sales, cost of sales ...

  16. Profit and loss forecast: Calculation and example

    A profit and loss forecast is the projection of a company's anticipated financial performance over a specific period. By analysing historical data, market trends, and economic indicators, this forecasting tool empowers business owners to anticipate revenue, assess expenses, and determine the net profit or loss they may face.

  17. Create Your Profit and Loss Statement in 4 Simple Steps

    A bookkeeping professional can then factor in interest, taxes, and depreciation to complete your profit and loss statement using the formula: Net Profit/Loss = EBITDA - (Interest + Taxes + Depreciation). The final statement with all line items accounted for might look something like this: Sales, Services: $18,750.

  18. Profit & Loss Projection: How to Forecast Your Income

    The profit and loss (P&L) statement is a good indicator of how efficiently your company is growing. It goes beyond just looking at top-line revenue and provides insights into the cost of growth. P&Ls are, by nature, however, a rearview mirror.

  19. Creating A Profit & Loss Statement In Your Business Plan

    The simplest formula is this one: 'total revenue - total expenses = profit (or loss)'. Details of your turnover form the basis of the P&L calculations. That's the money earned from selling goods or services during a trading year. You will need to use: sales receipts sales invoices credit notes and other sales documentation

  20. Profit and Loss (with LivePlan)

    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.

  21. What is a Profit and Loss Statement?

    Why a Profit and Loss Statement is So Important for a Small Business. Every business, big or small, thrives on accurate financial information. The Profit and Loss (P&L) statement, often termed as the income statement, serves as a comprehensive financial snapshot, detailing a business's financial activities over a defined period.

  22. Set up a profit and loss statement

    A profit and loss statement tells you how much your business is making or losing. Use our template to set up your profit and loss statement, so you can better manage your business sales. Why you need a profit and loss statement A profit and loss (or income) statement lists your sales and expenses.

  23. Profit and Loss Statement:

    #1 Income Statements and Business Plans It is vital that you include a projected income statement within you business plan. Whether it's preparation for a physical document to present to investors, or an internal one so that the company can stay on track, expecting business to be profitable over a set period of time is essential.

  24. Sole Proprietor Business Insurance: Costs And Types You Need

    A personal finance writer for over 8 years, Jackie Lam covers money management, lending, insurance, investing, and banking, and personal stories. An AFC® accredited financial coach, she is ...

  25. Lilly rides wave of weight-loss drug demand, working to expand capacity

    Eli Lilly on Tuesday forecast 2024 profit above Wall Street estimates on soaring demand for Zepbound, its recently approved weight-loss drug, and said it would have new supply from expanded ...

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    0 likes, 0 comments - bankstatement_snappt on December 24, 2023: " 朗勞 Call Text 954-829-8719 DM!!!☎️☎️ Do you need Financial Doc..."