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3.3
The Business Plan
3.3.5.2
Projected Profit & Loss Statement
This statement requires you to forecast your sales and expenses.
Without a clear understanding of the expenditure and revenues
it will be very difficult for the start-up to maintain its
cash flows appropriately. You would have already talked
briefly about the sales potential in your marketing plan.
Here you will translate the sales numbers into revenue.
Whereas
it is understood that it is almost impossible to accurately
forecast the sales, specially in a startup situation, your
due diligence in arriving at a forecast should reflect a
convincing attempt to arrive at genuine numbers. What it
means is that you should explain the basis of your forecast
considering published data, your own market study or from
an existing company in similar business and then temper
it with the environmental scan or industry specific variables
that may influence your business
The
other part of the profit and loss statement is the expenses
forecast. For smooth streamlining of finances, plan a sound,
realistic budget by determining the actual amount of money
needed to start and run your business. Even though ICED
will provide the starting infrastructure, it is better to
include it in the business plan.
Think
of all possible costs while preparing your expenses budget.
Usually the following costs will be involved:
| Fixed
Costs: |
|
-
Rent For Office And Office Maintenance
-
Electricity And Water Charges
-
Insurance And Taxes
- Computers
Including Computer Maintenance
- Other
Capital Equipment
- Advertisement
& Publicity
- Licenses/Permits
and Legal Fees
|
|
| Variable
Costs |
|
- Salaries
& Wages Including Their Welfare Expenses
-
Conveyance
-
Bank Charges
-
Printing & Stationery
-
Freight & Distribution
-
Telephone, Postage & Courier
-
Photocopy Charges
|
|
It is suggested that the above statement
be made on a quarterly basis for the first year and on a
yearly basis for the next two years. You should also break
up the expenses into fixed and variable costs, which will
make it easier for you to estimate costs at different levels
of operations for different years.
The illustration below shows a simple profit and loss statement
for a manufacturing concern:
|
|
|
|
|
|
Income |
|
|
|
Sales |
|
100 |
|
|
Other
income |
|
5 |
|
|
|
|
|
|
Expenditure |
|
|
|
|
Material
and other expenses |
60 |
|
|
|
Interest |
2 |
|
|
|
Depreciation |
2 |
|
|
|
|
|
|
|
Profit
before tax |
|
41 |
|
Provision
for tax |
|
10 |
|
profit
after tax available for appropriations |
|
31 |
|
|
|
|
|
|
Appropriations |
|
|
|
|
Dividend |
|
- |
|
|
General
Reserve |
|
15 |
|
|
Surplus
carried to the balance sheet |
|
16 |
|
|
|
|
|
|
|
|
|
|
It
will be a good idea to make the profit and loss statement
for different scenarios like less or more sales, change
in price levels or reduced costs. This will show you how
sensitive your business is to the impact of sales volumes
or different prices or a change in costs. For instance,
if you made the projected profit and loss based on sales
forecast of 100 units, see what will happen if sales are
only 80 units or 110 units. Similar exercise can be done
for different price and/or costs
The
above exercise will also help you in calculating the breakeven
levels. This will tell you the minimum sales quantity required
(at a particular price) to meet your costs without making
a profit or loss.
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