Appendix 2: Financial Data

The income projections (profit and loss) statement is valuable as both a planning tool and a key management tool to help control business operations. It enables the owner/manager to develop a preview of the amount of income generated each month and for the business year, based on reasonable predictions of monthly levels of sales, costs and expenses.

As monthly projections are developed and entered into the income projections statement, they can serve as definite goals for controlling the business operation. As actual operating results become known each month, they should be recorded for comparison with the monthly projections. A completed income statement allows the owner/manager to compare actual figures with monthly projections and to take steps to correct any problems.

Industry Percentage

In the industry percentage column, enter the percentages of total sales (revenues) that are standard for your industry, which are derived by dividing

Costs/expenses items x 100%

total net sales

These percentages can be obtained from various sources, such as trade associations, accountants or banks. Industry figures serve as a useful benchmark against which to compare cost and expense estimates that you develop for your firm. Compare the figures in the industry percentage column to those in the annual percentage column.

Total Net Sales (Revenues): Determine the total number of units of products or services you realistically expect to sell each month at the prices you expect to get. Use this step to create the projections to review your pricing practices.

Cost of Sales: The key to calculating your cost of sales is that you do not overlook any costs that you have incurred. Calculate cost of sales of all products and services used to determine total net sales. Also include any direct labor.

Gross Profit: Subtract the total cost of sales from the total net sales to obtain gross profit.

Gross Profit Margin: The gross profit is expressed as a percentage of total sales (revenues). It is calculated by dividing gross profits by total net sales.

Controllable (also known as Variable) Expenses: Include salary expenses, payroll expenses, outside services, supplies, repairs, marketing/advertising, accounting and legal.

Fixed Expenses: Include rent, depreciation, utilities, insurance, loan repayments, etc.

Net Profit (loss) (before taxes): Subtract total expenses from gross profit.

Taxes: Enter federal, state and local income taxes.

Net Profit (loss)(after taxes): Subtract taxes from net profit (before taxes).

Annual Total: For each of the sales and expense items in your income projection statement, add all the monthly figures across the table and put the result in the annual total column.

Annual Percentage: Calculate the annual percentage by dividing

Annual total x 100%

total net sales

Compare this figure to the industry percentage in the first column.

Click here for a sample form of income projection statement.

BALANCE SHEET

Figures used to compile the balance sheet are taken from the previous and current balance sheet as well as the current income statement. The income statement is usually attached to the balance sheet. The following text covers the essential elements of the balance sheet.

At the top of the page, fill in the legal name of the business, the type of statement and the day, month and year.

Assets: List anything of value that is owned or legally due the business. Total assets include all net values. These are the amounts derived when you subtract depreciation and amortization from the original costs of acquiring the assets.

Current Assets: Include cash and resources that can be converted into cash within 12 months of the date of the balance sheet (or during one established cycle of operation); an accounts receivable (the amounts due from customers in payment for merchandise or services); inventory (raw materials on hand, work in progress and all finished goods, either manufactured or purchased for resale); short-term investments (also called temporary investments or marketable securities, these include interest- or dividend-yielding holdings expected to be converted into cash within a year); and prepaid expenses (goods, benefits or services a business buys or rents in advance).

Long-term Investments: Also called long-term assets, these are holdings the business intends to keep for at least a year and that typically yield interest or dividends. Included are stocks, bonds and savings accounts earmarked for special purposes.

Fixed Assets: Also called plant and equipment. Includes all resources a business owns or acquires for use in operations and not intended for resale. Fixed assets may be leased. Includes land, buildings, improvements, equipment, furniture and automobile/vehicles.

Liabilities: Include both current liabilities and long-term liabilities.

Current Liabilities: Include all debts, monetary obligations and claims payable within 12 months or within one cycle of operation. Typically they include accounts payable (amounts owed to suppliers for goods and services purchased in connection with business operations); notes payable (the balance of principal due to pay off short-term debt for borrowed funds and the current amount due of total balance on notes whose terms exceed 12 months); interest payable (any accrued fees due for use of both short- and long-term borrowed capital and credit extended to the business); taxes payable (amounts estimated by an accountant to have been incurred during the accounting period); and payroll accrual (salaries and wages currently owed).

Long-term Liabilities: Include note, contract or mortgage payments due over a period exceeding 12 months or one cycle of operation.

Net Worth: Also called owner's equity, net worth is the claim of the owner(s) on the assets of the business. In a proprietorship or partnership, equity is each owner's original investment plus any earnings after withdrawals.

Total Liabilities and Net Worth: The sum of these two amounts must always match that for total assets.

Click here for a sample form of balance sheet.

CASH FLOW PROJECTION

A cash flow projection helps the entrepreneur understand the cash needs of the business. It should be prepared for each month for at least an entire year period.

1. It begins with an accounting of (1) the cash on hand at the beginning of a particular month.

2. To this amount is added expected (2) cash receipts, which includes
   1. all cash sales
   2. collections from credit accounts
   3. loans or other cash injection

3. Total cash receipts (2a+2b+2c=3)

4. Total cash available (before cash out)(1+3)

5. Cash paid out typically includes the following:
   1. Purchases (merchandise)--Merchandise for resale or for use in product (paid for in current month).
   2. Gross wages (including withdrawals)
   3. Payroll expenses (taxes, etc.)
   4. Outside services
   5. Supplies (office and operating)
   6. Repairs and maintenance
   7. Advertising
   8. Car, delivery and travel
   9. Accounting and legal
   10. Rent--Real estate only (Use 5(p) for other rentals)
   11. Telephone
   12. Utilities
   13. Insurance
   14. Taxes
   15. Interest
   16. Other expenses
   17. Miscellaneous
   18. Subtotal--This subtotal indicates cash out for operating costs
   19. Loan principal payment
   20. Capital purchases
   21. Other start-up costs
   22. Reserve and/or escrow
   23. Owner's withdrawal

6. Total cash paid out (add 5a through 5w)

7. Cash position (end on month) (4 minus 6)--Enter this amount in (1) Cash on hand following month.

Essential Operating Data (non-cash flow information)--This is basic information necessary for proper planning and for proper cash flow projection. Also with this data, the cash flow can be evolved and shown in the above form.

1. Sales volume (dollars)--This is a very important figure and should be estimated carefully, taking into account size of facility and employee output as well as realistic anticipated sales (actual sales, not orders received).
2. Accounts receivable (end of month)--Previous unpaid credit sales plus current month's credit sales, less amounts received current month (deduct “C” below).
3. Bad debt (end on month)--Bad debts should be subtracted from (B) in the month anticipated.
4. Inventory on hand (end on month)--Last month's inventory plus merchandise received and/or manufactured current month minus amount sold current month.
5. Accounts payable (end of month) Previous month's payable plus current month's payable minus amount paid during month.
6. Depreciation--Established by your accountant, or value of all your equipment divided by useful life (in months) as allowed by Internal Revenue Service.