{Photo by zen}
After your Cash Flow Statements are complete, the next step in the Business Plan Challenge is to tackle the Income Statement of your business plan.
Before we get into the nitty gritty details of the Income Statement, lets go over what an Income Statement is and what you can learn from it for you business. To start, the Income Statement (sometimes called the Profit and Loss Statement) measures the success of your business over the course of 2 years with the first year divided into quarters. The good news is it's the same information stated in the Cash Flow Statement, but it is organized into larger periods of time. Having your Cash Flow condensed as an Income Statement allows you to easily pick up on positive or negative trends in your business.
The Income Statement has 5 main sections:
1. Revenue - Total sales for given period of time
2. Cost of Goods Sold (COGS) - Direct cost to produce or acquire the goods sold. This is the opening Inventory for the period PLUS Purchases of new materials or Inventory Minus Closing Inventory.
3. Gross Margin - The amount of revenue left after COGS to operate the business.
4. Expenses - Costs incurred to run the business - taken directly from Cash Flow Statement
5. Net Profit (Loss) - Whatever money is left after expenses. "( )" indicate a negative.
To help, you can download an Income Statement template. This spreadsheet only has one column and suggests completing year 1 for your statement. For our Income statement, the first year we broke into quarters and then a year end total. We also completed a year end for year 2. You can modify the linked template by coping and pasting a few extra columns. All of the information should be copied from and match your Cash Flow Statement.
Next week, we'll be back to talk about the balance sheet!
Lili Nedved and Henry Sinha are opening a brick and mortar retail store
in Vancouver, Canada. With lots experience staying up late and working
on Lili’s handbag business, iglubu,
Henry was recently promoted from an Electrical Engineer to Director of
Fabric Organization. Lili hopes her Finance degree will give her the
edge in the competition for Employee of the Month.
