Income statements cover the revenue and expenses of a business over a certain time period. If you want to plan ahead or forecast how upcoming changes are going to affect your business’s income, you need to know how to make a projected income statement.
Identify a Time Period
You should start by selecting a time period. This may be next month, next quarter, next year, or any other time period you want to make forecasts about. Then, pull information from previous time periods of the same length.
Looking at Past Income
If you use QuickBooks or many other types of accounting software, you may want to export profit and loss statements from various time periods to a spreadsheet. For example, if you plan to make an income statement projection for next month, you should export profit and loss statements from the last six months. Similarly, if you want to make projections for next year, you should start with profit and loss statements from last year and the previous year.
Populating Static Data
In most cases, your existing profits and loss statements should run in columns. The time period covered should be noted at the top of each column. Then, each column should list incoming revenue, expenses (broken into categories such as rent, cost of goods sold, and payroll), and the last number in each column should note net income for that time period. Ideally, the furthest left column of the spreadsheet should note the categories for each row.
To start your income projection, copy the format of the existing columns, and fill out any fields that are the same. For example, your rent is likely to be the same each month, so you can simply transfer this number to your income projection column.
Estimating Other Numbers
Once you’ve filled in all the information that is the same, you need to start making projections. This task can be hard, but the more income projection statements you make, the easier it gets. If you like, you can simply make estimates. To explain, imagine your business revenue was $14,000 in January and $12,000 in February. If you are making an income projection statement for March, you could estimate $13,000 in revenue.
Alternatively, if your business is growing each month, you may want to calculate the percentage of increase and use that to create your estimates. To illustrate, imagine your income from January, February, and March was $10,000, $12,000, and $14,400. In this case, your income has been growing steadily at a rate of 20% a month for the last three months. If you anticipate this trend continuing, you could use $17,280 as your projected income for April.
Using the Data
Use your income statement projections to judge your progress and track financial goals. To use these statements effectively, pull them out after the projected period of time has ended. Compare the actual numbers to the projected numbers and assess the differences. You should also look at your net profit as a percentage of revenue, and look for shifts over different time periods. That can help you hone in on where to make changes.