Writing Your Business Plan Part VII - The Financial Statements - Income Statement

Financial statements can be a daunting task for most folks. This overview will cover the three parts: income statement, balance sheet and cash flow statement as well as a couple of tips. Preferrably, use a spreadsheet program like Excel or Numbers for all of your work.

The Income Statement is a big list of all your income minus your expenses. Its a simple concept really, it gets complicated where you categorize items (and with the Tax Man).

Income = Money In (Sales/Revenues)

Your income can be categorized by product, service or just a lump sum. So if you were a restaurant it might look like:

Income

Food sales

Beverage sales

T-shirt, hat, apron sales

You could break it down further by breakfast, lunch, dinner. Don’t forget to subtotal your income.

Expenses = Money Out

Expenses start with Cost of Good Sold (COGS) meaning, any cost to produce the product you are selling should be attributed to COGS. Again, if you are a restaurant it will be ingredient costs, chef salary and your cost of those t-shirts.

Income - COGS = Gross Profit

The rest is overhead (and again taxes). Now, if you need to purchase major equipment like stove, oven, walk-in refrigerator, tables and chairs, hold these for later - these costs are assets expensed over time which we will deal with in the balance sheet section. We will come back to depreciation expense at that time.

Expenses

Automobile: fuel, service

Office supplies

Liability insurance

Marketing & Advertising

Phone, internet

Charitable contributions

Dues & Subscriptions

Depreciation

You get the idea...

Income - COGS - Expenses = Net Income (Profit, Revenue)

TIP:

Break out major expense areas. Have separate lists for marketing expenses and start up expenses or other expansive areas and link it back to your main list.

Next up: Balance Sheet