Include monthly sales for the first year, then quarterly for the following two years. Adding these four gives you the net income, which is a measure for profitability.
In the first year of business, you’ll want to create a monthly income statement.
Conversely, if your immediate revenue exceeds your pro forma income, then you may need to hire employees, expand your facility, or seek financing sooner than you expected. Operating expenses can be calculated based on your expense budget. This focuses on the company’s revenues and expenses, generated during a particular time period.
To establish credibility with prospective investors and lenders, pro forma statements should ideally show projections three years in advance. Project your sales out for at least three fiscal years. Operating expenses are any expenses that businesses incur performing their normal business operations. The four key items included in the income statement are revenue, expenses, gains, and losses.
Financial projections are important regardless of your current business standing.
First, they enable you budget for your new business. Comparing your actual financial statements to your projections is referred to as variance analysis.
For the second year, quarterly statements will suffice.
In the following years, you’ll just need an annual income statement.
High projected profits indicate lack of understanding, not reasonable expectations of profitability.
There are many resources to help finance your business.