Income statements cover the revenue and expenses of a business over a certain time period, and they help ensure you stay within your budget and help you identify potential issues so you can address them before they become problems. If you want to plan ahead or forecast how upcoming changes might affect your business’s income, you need to know how to create a projected income statement. Using this data can help you achieve higher growth rates in the long-term.
Use Past Income to Predict Future Income
To create a projected income statement, start by selecting a time period in the future, such as the next month, next quarter, or next year. If you use QuickBooks Online accounting software to track your income and expenses, export your profit and loss statements from the time period you choose to a spreadsheet. For example, if you plan to make an income statement projection for next month, export profit and loss statements from the last six months. Similarly, if you want to make projections for next year, start with profit and loss statements from last year and the previous year.
Populate Static Data for Comparison
In most cases, your existing profits and loss statements should run in columns, and top of each column should note the time period it covers. Each column should list categorized financial information for incoming revenue and outgoing expenses, and the last number should note net income for that time period. Ideally, the leftmost column of the spreadsheet should note the categories for each row. Once you have this information, copy the format of the existing columns and fill out any fields with the same information. For example, you likely pay the same amount of rent each month, so you can simply transfer this number to your income projection column.
Estimate Expenses and Revenue for the Future
Once you fill in fields with the same information, you can start making projections based on the financial information that you have in front of you. For instance, if January shows your business had $14,000 in revenue and February shows it had $12,000 in revenue, you can average those two months to estimate $13,000 in revenue for March.
If your business experiences growth 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 experienced steady growth at a rate of 20 percent per month for the last three months. If you anticipate this trend continuing, you could use $17,280 as your projected income for April.
Use the Projected Income Statement Data for Planning
Once you complete your projected income statement, you can use this information to analyse your progress and track financial goals. To use these statements effectively, pull them out after the projected period of time ends, compare the actual numbers to the projected numbers, and then assess the differences between your financial information and projected income statement. Remember to look at your net profit as a percentage of revenue and for shifts over different time periods. Looking for patterns between actual numbers and projections can help you hone in on where to make changes to further improve growth.
Tracking and analysing your financial performance helps you suss out key information about your business, including the areas where you knock it out of the park and ones with opportunity. Having excellent accounting software that streamlines the process lets you quickly print out reports and provides extra tools to help you excel. 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.