profit loss in business plan

• Costs and revenue management

Why is a profit and loss forecast important for businesses?

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.

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.

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.

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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Home > Finance > Accounting

How to Effectively Manage Your Company’s Profit and Loss

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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.

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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).

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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

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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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Profit and Loss Statements 101 (with Template)

Bryce Warnes

Reviewed by

Janet Berry-Johnson, CPA

April 26, 2024

This article is Tax Professional approved

Want to know how profitable your business is? The best way to find out is to create a profit and loss statement.

Here’s how you put one together, how to read it, and why profit and loss statements are important for running your business.

I am the text that will be copied.

What is a profit and loss statement?

A P&L statement (sometimes called a statement of operations) is a type of financial report that tells you how profitable your business was over a given period. It shows your revenue, minus expenses and losses. The result is either your final profit (if things went well) or loss .

The P&L statement is one of the three most important financial statements for business owners, along with the balance sheet and the cash flow statement (or statement of cash flows).

One of the most common reasons small businesses start producing profit and loss statements is to show banks and investors how profitable their business is.

When profit and loss statements are meant to be shared outside a business, they’re called income statements. A P&L statement is for internal use only. Other than that, the two statements are essentially the same.

Profit and loss statement example

We’ve created a profit and loss statement for an imaginary small business—Terracotta Warriors, a supplies store for potted plant enthusiasts.

Terracotta Warriors Inc.

Income Statement

For Year Ended Dec. 31, 2021

Profit and loss statements should be read top to bottom—so we’ll go through this one line by line, starting at the first.

Further reading: How to Read (and Understand) an Income Statement

Sales revenue

Every profit and loss statement starts off by showing your company’s revenues.

How you calculate your revenue depends on whether you do cash or accrual accounting and how your company recognizes revenue —particularly if you’re tracking income for a single month (rather than a year, as part of an annual report.)

The sales revenue line simply represents your total revenue for the time period you’re reporting. (In this case, it’s the year ending on December 31, 2021.)

Cost of goods sold

Abbreviated as “ COGS ,” this is the cost of producing the goods or services you sold to your customers during the reporting period.

COGS involves only direct expenses: Raw materials, labor, and shipping costs. In the case of Terracotta Warriors, that might include planting pots (purchased wholesale), wages for employees, and the cost of shipping online orders.

Indirect expenses—for instance, utilities, bank fees, and rent—aren’t included in COGS. Those go into a separate category.

Gross profit

When you subtract COGS from your sales revenue, you get gross profit . This number tells you how profitable your business is after taking into account direct costs, but before taking into account overhead costs . You can consider it a rough measure of how your business is performing.

General expenses

Also referred to as “operating expenses,” general expenses include rent, bank & ATM fees, equipment expenses, the cost of marketing & advertising, merchant fees, and any other expenses you incur in order to keep your business running.

Some profit and loss statements will bundle these and similar expenses together into one broad category: Selling, General & Administrative Expenses (SG&A). In our example, though, they’re broken out into individual line items.

Operating earnings

Once you take into account all internal costs, you get your operating earnings. It’s a measure of how profitable your business is, without taking into account external costs, like interest payments, taxes, depreciation, and amortization. Operating earnings is sometimes called EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).

You have considerably more control over your internal costs than your external—taxes, interest payments, and other expenses are partly determined by the work of financial professionals. For that reason, many accountants consider EBITDA the best measure of how a business is performing.

Operating earnings are sometimes called operating profit or operating income. And EBITDA are sometimes referred to as non-operating expenses.

Interest expense

If your business has a loan, line of credit , or credit card, it’s likely you need to make monthly interest payments. Your interest expenses are the total interest payments you made to creditors for the period covered by the income statement.

Earnings before income tax

This line shows your business’ profitability before it pays its taxes.

Income tax expense

This is how much tax you paid on your income.

This is where the term “bottom line” comes from. The bottom line of the profit and loss statement is your net earnings—the total profit for your business, taking into account all internal and external expenses.

Profit and loss statement template

If you have a bookkeeper or accountant, they may already generate P&L/income statements for you. Likewise, many types of accounting software will automatically generate useable income statements, so long as you accurately categorize all your transactions.

Want to take a DIY approach? Our expert bookkeepers here at Bench have built a profit and loss statement template in Excel. You can use it to turn your business’ financial information into a P&L statement.

What is a single-step P&L statement?

The profit and loss statement above is technically called a “multi-step” P&L statement. That’s because you have to perform multiple calculations in order to arrive at your final net income. (In this case, we calculated gross profit, then subtracted general expenses, then subtracted interest, and then income tax expenses.)

A single-step profit and loss statement is a bit more straightforward. It adds up your total revenue, then subtracts your total expenses, and gives you your net income. Simple.

We created an example single-step profit and loss statement for another hypothetical company, the Pot Barn:

The Pot Barn Inc.

Profit and Loss Statement

The single-step format is good at giving you a snapshot of your company’s profitability, and not much else. That’s why it’s not as common as the multi-step P&L statement. But if you’d like a super simple method of calculating your business’ profitability, single-step is the ticket.

What is a common size profit and loss statement?

Common size profit and loss statements include an extra column of data summarizing each line item as a percentage of your total revenue.

Here’s the profit and loss statement for Terracotta Warriors Inc., done up this time as a common size P&L statement:

Common size profit and loss statements can help you compare trends and changes in your business.

For example: if your Operating Earnings change from $21,052.44 to $23,443.33, that might not tell you much by itself, because other numbers might have changed as well. But if your Operating Earnings increase from 36.90% to 44.23%, that’s a concrete, significant change in your business.

How to analyze a profit and loss statement

While it can seem like a daunting pile of numbers, knowing how to review a P and L statement can show you how your business is evolving over time and when it has been most profitable. It can also help you uncover any potential issues with your cash flow.

1. Check your bottom line

Curious how your business is doing? Check your bottom line.

The last line of your P&L indicates whether you’re “in the black” (earnings were greater than expenses) or “in the red” (expenses were greater than earnings).

While a net profit is always something to celebrate, a net loss doesn’t always mean your business is in trouble, especially when first starting out. However, it can indicate any areas that might need attention to ensure losses don’t become a pattern.

2. Check your income streams and expenses

Once you know whether your business has made money or not, it’s a good idea to take a closer look at your income streams and expenses.

Are your revenue sources in line with your business goals? Are they a one-time or continuous increase? It’s good to know if a surge in profit came from gradual growth or a specific event or promotion.

On the other hand, do your expenses make sense for the time period examined? Some costs like rent and utilities might be fixed, while others like supplies or wages could vary.

If your business had a net loss, it’s good to see if you can reduce any ongoing costs or if they were necessary for that time period (i.e., increased inventory for the holidays, planned expansion, etc.).

3. Compare your numbers

It’s important to compare your P&L statement to previous periods to see if your profit or loss is a trend or an anomaly.

Examining the percentage of change in each category can help you determine if you’re on track to meet your goals. Even though a large percentage jump in earnings may seem positive at first glance, if the same period the year prior had very low income, the growth might not be as significant. The same might also be true for expenses.

Once you’ve made your comparisons, you will have a better idea of what’s working or not for your business and if you need to make any changes moving forward.

4. Double-check your math

If you’re working in an Excel spreadsheet to build and review your P&L statement, be sure to double-check your numbers to make sure you didn’t miss anything or accidentally change a formula. Sometimes, manual data entry can lead to mistakes that affect your bottom line. Reviewing your previous statements can also help in this process.

Profit and loss statement vs. balance sheet: what’s the difference?

A balance sheet shows you how much you have (assets), how much you owe (liabilities), and how much is left over (equity). It’s a snapshot of your whole business as it stands at a specific point in time.

A profit and loss statement describes how profitable your business is. It shows you how much money flowed into and out of your business over a certain period of time.

Further reading: Income Statements vs. Balance Sheets

How Bench can help

An up-to-date profit and loss statement helps you keep an eye on your business’s financial health so you can identify cash flow issues before they become a problem.

Your Bench account’s Overview page offers an at-a-glance profit and loss statement, allowing you to review your profitability and stay on top of your top expenses from month to month. Spend less time figuring out your profitability and more time optimizing it with Bench. Learn more .

A DIY approach to profit and loss statements

Interested in generating your own P&L statement to track cash flow and expenses for your small business? Try our profit and loss statement Excel template . It’s free to download, and you can customize it using your business numbers to make examining your company’s performance easier.

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• What Is a P&L Statement?
• How It Works
• Comparing P&L Statements
• Types of P&L Statements

The Bottom Line

• Corporate Finance
• Financial statements: Balance, income, cash flow, and equity

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

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.

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

A profit and loss (P&L) statement, also known as an income statement, is a financial statement that summarizes the revenues, costs, expenses, and profits/losses of a company during a specified period. These records provide information about a company’s ability to generate revenues, manage costs, and make profits.

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 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 P&L Statement

Below is the income or P&L statement for 2023 and 2022 for the 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 not even prepare formal financial statements at all.

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.

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• Building Your Business
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• Business Plans

Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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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)

• 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 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 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.

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Tim berry on business planning, starting and growing your business, and having a life in the meantime., standard business plan financials: how to project cash flow.

No matter what your business planning objectives, cash flow is still the most vital resource in the business, and managing cash is the single most important business function. Without cash, you go under. So I always assume cash flow is included in every kind of real business plan. And it is the most important component of standard business plan financials. This is another of my series on standard business plan financials .

(Important: If you’re using LivePlan, life gets a lot easier for you. Please read LivePlan Cash Flow instead of this post. )

The Projected Cash Flow is what links the other two of the three essential projections, the Projected Profit and Loss and Projected Balance Sheet, together. The cash flow completes the system. It reconciles the Profit and Loss with the Balance.

Experts can be annoying. There are several ways to do a cash flow plan. Sometimes it seems like as soon as you use one method, somebody who is supposed to know tells you you’ve done it wrong. Often that means that expert doesn’t know enough to realize there is more than one way to do it.  I’m doing direct cash flow for this post. I may do indirect in a later post.

Direct Cash Flow

So here is a direct cash flow plan. You can see the potential complications and the need for linking up the numbers from the other statements. Your estimated receipts from accounts receivable must have a logical relationship to sales and the balance of accounts receivable. Likewise, your payments of accounts payable have to relate to the balances of payables and the costs and expenses that created the payables. Vital as this is to business survival, it is not nearly as intuitive as the sales forecast, personnel plan, or income statement. The mathematics and the financial projections are more complex.

Here’s a sample Projected Cash Flow for a bicycle shop, so you can see how that works:

Estimating Receipts from Receivables

The first two rows of Garrett’s cash flow projection depend on detailed estimates of money coming in as his customers on account pay their invoices. To estimate that, he lays out his guess based on the assumption that only 10% of his sales are on credit (on account), and that his customers pay their invoices in about one month on average. That estimate looks like this:

In this case, the sales on credit are 10% of the estimated total sales in the Sales Forecast, $26,630. That’s the result of Garrett’s assumption, based on the nature of his business. And the money involved comes in one month later. This worksheet projects the Accounts Receivable value in Garrett’s Projected Balance Sheet, as well as the Received from AR value in the Projected Cash Flow. The receivables analysis depends on information in the Profit and Loss Projection, plus an assumption about Sales on Credit, and another on waiting time before payment. And it affects the Projected Balance and the Projected Cash Flow, as shown in this next illustration:

Estimating the Impact of Inventory

Inventory presents another set of important cash-related assumptions. I explained earlier that in the case of inventory, proper accounting practices require special details. The cost of inventory that shows up in the Projected Profit and Loss is related to timing of sales. The actual cash flow implications of inventory depend on when new inventory is purchased, as shown here:

As with Accounts Receivable in the previous illustration, the inventory analysis depends on information from the Sales Forecast, and it sends information to both the Projected Balance Sheet (Ending Inventory) and the Projected Cash Flow (Inventory Purchase).

Estimating the Impact of Payables

Most businesses wait a month or so before they pay invoices for goods and services received from other businesses. That means we can save on our cash flow by holding back some money and paying it later. With proper accrual accounting, that money is recorded on the Balance Sheet as Accounts Payable. Estimating Accounts Payable takes a careful combination of calculations and assumptions. First we have to collect the full amount of payments. Then we account for payments made immediately, not held in Accounts Payable. After that, we estimate how long, on average, we hold payments. That analysis is shown below:

In this case, it is assumed that the store will pay its bills about a month after it receives them.

Cash Flow is About Management

Reminder: you should know how to project cash flow using competent educated guesses based on an understanding of the flow in your business of sales, sales on credit, receivables, inventory, and payables. These are useful projections. But real management is minding the projections every month with plan vs. actual analysis so you can catch changes in time to manage them. The illustration here shows projected profits for the bicycle store compared to the projected cash flow, using the projections presented in this chapter:

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Business Plan Profit 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

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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

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

Size: 193 KB

Business Planning: Profit and Loss Statement Preparation Example

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

Size: 41 KB

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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Disney’s streaming business turns a profit in first financial report since challenge to Iger

FILE - A Disney logo forms part of a menu for the Disney Plus movie and entertainment streaming service on a computer screen in Walpole, Mass, Nov. 13, 2019. Walt Disney’s moved to a loss in its second quarter, hampered by significantly higher restructuring and impairment charges, but its streaming business was profitable and theme parks continued to be a strength. While The Walt Disney Co. said Tuesday, May 7, 2024, that it foresees its streaming business softening in the third quarter due to Disney+Hotstar, it expects its combined streaming businesses to be profitable in the fourth quarter and to be a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025. (AP Photo/Steven Senne, File)

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The Walt Disney Co. swung to a loss in its second quarter because of restructuring and impairment charges, but its adjusted profit topped expectations and its streaming business turned a profit. Theme parks also continued to do well and the company boosted its outlook for the year.

While Disney said Tuesday that it foresees its overall streaming business softening in the current quarter due to its platform in India, Disney+Hotstar, it expects its combined streaming businesses to be profitable in the fourth quarter and to be a meaningful future growth driver for the company, with further improvements in profitability in fiscal 2025.

The direct-to-consumer business, which includes Disney+ and Hulu, posted quarterly operating income of $47 million compared with a loss of $587 million a year earlier. Revenue rose 13% to $5.64 billion.

For the combined streaming businesses, which includes Disney+, Hulu and ESPN+, second-quarter operating loss shrunk to $18 million from $659 million, while revenue improved to $6.19 billion from $5.51 billion.

Disney+ core subscribers climbed by more than 6% in the second quarter.

Yet the improved picture for Disney on streaming arrives with its cable business in decline. That segment saw revenue slide 8% in the most recent quarter.

“Looking at our company as a whole, it’s clear that the turnaround and growth initiatives we set in motion last year have continued to yield positive results,” CEO Bob Iger said in a prepared statement.

Speaking during Disney’s conference call, Iger said that the company plans to add an ESPN tab to Disney+ by the end of the year, a maneuver that was previously made with Hulu. This will give U.S. subscribers access to some live sports and studio programming within the Disney+ app.

ESPN, Fox and Warner Bros. Discovery announced plans in February to launch a sports streaming platform in the fall that will include offerings from at least 15 networks and all four major professional sports leagues.

Iger also said that next month the company will start cracking down on password sharing for its streaming service in some markets, and will expand that crackdown globally in September.

While Disney has quality streaming content, Iger said that the company must now focus on building out its technology, similar to what rivals like Netflix have been doing. Those actions, including the password crackdown, are expected to improve profits.

It’s the first financial report since shareholders rebuffed efforts by activist investor Nelson Peltz to claim seats on the company board last month, standing firmly behind Iger as he tries to energize the company after a rough stretch.

Thomas Monteiro, senior analyst at Investing.com, said that some Disney investors may have been expecting more from the quarterly report, but that “the company has tilted its operation back to its core business model, which is more conservative by nature.”

Monteiro was focused on the company’s efforts to turn its streaming division profitable.

“The big surprise of the day came on the streaming front, which finally managed to bring profits - way ahead of predictions - amid Hollywood’s massive strike period,” Monteiro said. “This indicates that perhaps the more global, low-production-cost Netflix-like model is probably the way to go in an operation that needs to rethink its growth expectations as a whole.”

Revenue at Disney’s domestic theme parks rose 7%, while its theme parks overseas reported a 29% increase.

But Disney acknowledged wrestling with higher costs at its theme parks during the quarter due to inflation.

The company said that there was increased spending by guests at Walt Disney World due to higher ticket prices, while Disneyland guests boosted their spending due to an increase in ticket prices and hotel room rates.

Overseas, Hong Kong Disneyland benefited from the opening of World of Frozen, a section of the park that includes rides based on the popular “Frozen” movies, in November.

Similar to many tourist destinations, Disney is continuing to adjust to post-pandemic travel.

“While consumers continue to travel in record numbers, and we are still seeing healthy demand, we are seeing some evidence of a global moderation from peak post Covid travel,” Chief Financial Officer Hugh Johnston said during the call.

For the period ended March 30, Disney lost $20 million, or a penny per share. That compares with a profit of $1.27 billion, or 69 cents per share, a year ago.

Restructuring and impairment charges surged to $2.05 billion from $152 million in the prior-year period.

Adjusted earnings, which stripped out the charges and other items, were $1.21 per share, easily beating the $1.12 per share that analysts polled by Zacks Investment Research predicted.

Disney said that due to its second-quarter performance, it now has a full-year adjusted earnings per share growth target of 25%. It previously predicted growth of at least 20%.

The Burbank, California, company’s revenue rose to $22.08 billion from $21.82 billion a year earlier, but was slightly lower than Wall Street estimates of $22.13 billion.

Content sales and licensing revenue tumbled 40% because Disney didn’t release any significant movie titles during the second quarter as compared with the prior-year period, which included the release of “Ant-Man and the Wasp: Quantumania.” The year-ago results were also helped by the ongoing performance of “Avatar: The Way of Water,” which was released in December 2022.

Shares fell more than 10% Tuesday.

In February The Walt Disney Co. said that it was making “significant cost reductions” and reduced its selling, general and other operations expenses by $500 million in its first quarter. The company cut thousands of jobs in 2023.

In March allies of Gov. Ron DeSantis and Disney reached a settlement agreement in a state court fight over how Walt Disney World is developed in the future following the takeover of the theme park resort’s government by the Florida governor.

Last month character performers at Disneyland in California and the union organizing them, Actors’ Equity Association, said they had filed a petition for union recognition.