Finance factors are the scorecard on your business’s financial performance, reflecting when sales are made and when any expenses are incurred.
An income statement is a simple and straightforward report on the proposed business’s cash-generating ability.
The finance factors draw much information from most financial models developed earlier, such as revenue, expenses, capital, and cost of goods.
After all these elements have been combined, the income statement illustrates just how much your company makes or loses during the year by subtracting the cost of goods and expenses from revenue to arrive at a net result, which can either a profit or a loss.
Base on a business plan, the income statement should be generated every month during the first year, quarterly for the second, and annually for each year after that. It is formed by listing your finance factors projections in the following manner:
- Income – Includes all the revenue generated by the business and its sources.
- Cost of goods – Includes all the expenses related to the sale of products in inventory.
- Gross profit margin – This is base on revenue and the cost of goods. Gross profit margin can be revealed in dollars as a percentage. In contrast, the GP margin is always stated as a revenue percentage on the rate.
- Operating expenses – include all overhead and labor costs associated with the business’s operations.
- Total expenses – This is the sum of all overhead and labor expenses required to operate the business.
- Net profit – Based on the difference between gross profit margin and total expenses, the net income depicts its debt and capital capabilities.
- Depreciation – Reflects the decrease in value of capital assets used to generate income and also used as the basis for a tax deduction and an indicator of the flow of money into new capital.
- Net profit before interest – The difference between net profit and depreciation.
- Interest – Includes all parts attained from debts, on short-term and long-term. Interest is totally determined by the amount of investment within the company.
- Net profit before taxes – This is between net profit before interest and interest.
- Taxes – Includes all taxes on the business.
- Profit after taxes – This is within net profit before taxes and the taxes accrued. In contrast, profit after taxes is the bottom line for any company.