The Profit and Loss is Income, or pro forma Income

We call it Profit and Loss (A financial statement that shows sales, cost of sales, gross margin, operating expenses, and profits or losses) most frequently, but it is also frequently called the Income Statement in accounting. Technically, in a business plan, it is a Pro Forma Income Statement (A projected Income Statement) because the "pro forma" means it contains future projections, not past facts.

The Profit and Loss in the financial model follows standard conventions, the format that most bankers, investors, and accountants are used to, by putting Sales at the top, followed by Cost of Sales (The costs associated with producing the sales) or Cost of goods sold (The costs of materials and production of the goods a business sells), to show Gross Margin (The difference between total sales revenue and total cost of goods sold, also called total cost of sales), which is Sales minus Cost of Sales. After that comes operating expenses Expenses incurred in conducting normal business operations. Operating expenses may include wages, salaries, administrative and research and development costs, but excludes interest, depreciation, and taxes., and, at the bottom, Profit (An accounting concept, normally the bottom line of the Income Statement, which is also called Profit or Loss statement) as the bottom line. Figure 2 shows an example.

Figure 2:  A Simple Profit or Loss

The standard Profit and Loss table is arranged the way bankers and accountants expect to see it.

Business Plan Pro gets the sales and direct cost of sales on the Income Statement from the Sales Forecast. The payroll (wages, salaries, employee compensation) information comes from the Personnel Plan. Interest expenses (Interest is paid on debts, and interest expense is deducted from profits as expenses) are determined by liabilities (Debts; money that must be paid) balances and interest rate assumptions.

The Income Statement can be much more complex than the illustration here. Many Income Statements divide expenses into categories, such as General and Administrative Expenses, Sales and Marketing Expenses, and others. Many Income Statements show "Other Income," also called Non-operating Income.

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