How to Create an Income Statement
Part One of the Financial Section of a Business Plan
What Is an Income Statement?
An Income Statement gives any reader of your business plan a quick glance at how your business is faring from a profit standpoint using a very simple equation: Revenue minus Expenses equals either Profit or Loss.
When Is an Income Statement Used?
There are three sections in the financials section of all business plans, and the Income Statement is one of those crucial elements. Many entrepreneurs also use Income Statements as a quick way to see how their business is faring on a large scale.
Example of an Income Statement
What follows is an example of what a standard Income Statement might look like. Keep in mind that all businesses are different, and therefore the Income Statement your business needs to display all of the necessary information may require more or less entries than the one listed here. For more Income Statement examples, try reviewing some free business plan templates for ideas and suggestions.
First, list your business name at the top of your Income Statement. It's much easier if you create your Income Statement in a spreadsheet application, because you will be doing calculations that may need updating.
Next, write the time period the Income Statement is being used for (usually one year) with the year ending listed as well. Then, make a row for each month that your Income Statement is being created for.
Now create columns for each of the following items (adding or subtracting items specific to your business' set up), so that you can list a number for every month your Income Statement includes:
REVENUE : Subheadings can include Revenue: Services, Revenue: Products, Revenue: Miscellanenous (such as Bank Interest), along with a list of all of the services and/or product types you plan on carrying. Make sure to have a column that totals all of your revenue at the end of this section as well.
EXPENSES: Subheadings can include Direct Costs (Materials, Equipment Rentals, Owner Salary, Wages, Wage Expenses) and Administration (Professional Fees, Advertising and Promotion, Bad Debts, Bank Charges, Depreciation, Insurance, Rent, Telephone, Utilities, Credit Card Fees). Don't forget to total each section as well as the entire Expenses category.
INCOME TAX PAYABLE: Which is self-explanatory. You may need to speak with an accountant to estimate the amount of income tax you'll be required to pay on a monthly or yearly basis to come up with a figure here.
NET INCOME: Add your Expenses and Income Tax Payable together, and subtract this number from your total Revenue. This is your Net Income (or Loss). Any entrepreneur whose business plan creates a Net Loss during this stage needs to look further at his or her business idea to figure out ways of either cutting costs or increasing revenue in order to make a profit.
Want to see what a complete business plan looks like? Then review our Free Business Plan Templates and More Free Business Plan Templates. Or, go back to the Free Business Plan How To.
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