Income Statement Projections
The income statement displays all revenues and expenses monthly including:
- Sales revenues
- Profit margins
- Overhead expenses
- One time (extraordinary) revenues and expenses
- Net profit
It includes non-cash items like:
- Asset amortization
- Depreciation/ appreciation
- Gain/ loss on sale of assets
- Write down in assets or investments
- Others non-cash items
It also displays practical information like:
- Gross profit margin per product via cost cards
- Growth per product line within maximum company capacity
- Slow and busy seasonality per product
- Peace of mind – Don’t wonder if you are on a downward slump anymore. Know your seasonality.
- Reduce profit volatility – make diversification decisions into counter cyclical services/ products to reduce slow season losses.
- Enables discontinue/ outsource decisions – Monthly projected income statements based on cost cards and growth should show you which products/ services are profitable and/ or unprofitable. Perhaps you subcontract that unprofitable service or wait a bit longer until you launch that new product.
- Get and stay financed – Earn lender confidence and trust by displaying that you know your businesses cycles and each product/ service’s contribution/ reduction toward company profits. This indicates that you are in control and know your business.
The monthly income statement does not indicate the need, size or length of time a line of credit or working capital financial instrument is needed during the year. Only the monthly cash flow determines cash surpluses/ deficits and most banks require a monthly cash flow projection to grant a line of credit.