Being able to present a clear, concise, logical and
supportable financial projection is probably the
most important key to having a chance of obtaining
the capital you desire. If you don't have
financial forecast ability, hire someone who does.
Have your pro forma give a month by month breakdown
for the first year and then quarterly or annually
for the next four years.
Projections Should Include and Fully
Support:
Sales Estimates Administrative Costs Production Costs Sales Costs Capital Expenditures Gross Margin by Product Line Sales Increase by Product Line Interest Rates on Debts Income Tax Rate Accounts Receivable Collection
Plan Accounts Payable Schedule Inventory Turnover Depreciation Schedules Usefulness of Assets
The Income Statement (Profit &
Loss)
The income projection enables the owner/manager to
develop a preview of the amount of income generated
each month and for the business year, based on
reasonable predictions of monthly levels of sales,
costs and expenses.
1. Total Net Sales
(Revenues)
The total number of units of products or services
you realistically expect to sell each month in each
department at the prices you expect to get. Use this
step to create the projections to review your
pricing practices. What returns, allowances and
markdowns can be expected?
2. Costs of Sales
The key to accurately calculating your cost of sales
is not to overlook any costs that you have incurred.
Calculate the cost of sale of all products and
services used to determine total net sales. Where
inventory is involved, remember transportation costs
and any direct labor.
3. Gross Profit Subtract the total cost of sales from the total
net sales to obtain gross profit.
4. Gross Profit Margin
The gross profit is expressed as a percentage of
total sales (revenues). It is calculated by dividing
the gross profits by the total net sales.
5. Controllable Expenses
Salary expenses -- Base pay plus
overtime. Payroll expenses -- Include paid
vacations, sick leave, health insurance,
unemployment
insurance
and social security taxes (employer paid portion). Outside services -- Include costs
of subcontracts, overflow work and special or
one-time
services. Supplies -- Services and items
purchased for use in the business. Repair and maintenance -- Regular
maintenance and repair, including periodic large
expenditures
such as painting. Advertising -- Include desired
sales volume and classified directory advertising
expenses. Car delivery and travel -- Include
charges if personal car is used in business,
including
parking,
tools, buying trips, etc. Accounting and legal -- Outside
professional services. Dues and subscriptions. Utilities.
6. Fixed Expenses
Rent -- List only real estate used
in business. Depreciation -- Amortization of
capital assets. Insurance -- Fire or liability on
property or products. Include workers'
compensation. Loan repayments -- Interest on
outstanding loans. Licenses and permits. Miscellaneous -- Unspecified; small
expenditures without separate accounts.
7. Net Profit (or Loss)
(before taxes) - Subtract total
expenses from gross profit. Taxes - Include inventory and sales
tax, excise tax, real estate tax, etc. (after taxes) - Subtract taxes from
net profit (before taxes)
Income Projection Worksheet This following is the form that should be
used to project month to month income and expenses
for year one and then to provide annual projections
for the next four years.
Revenue Projection
Total net sales (TNS) $ Costs of sales (COS) $ Gross profit (TNS-COS=GP) $ Gross Profit margin (GP/TNS) %
