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Archives for May 2012

Why You Need to Include a Narrative With Your Cash Flow Projections

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It is incredibly important to include a narrative explanation with your cash flow projections.  Typically, your cash flow projections are provided to your banker or potential investor as part of your funding application.  When a banker or potential investor looks at your projections they want to clearly understand how and where you came up with your numbers.  You made a number of assumptions in order to create your projections, you must clearly explain those assumptions through a written narrative.  Let me give you an example of how I would write a narrative section to go along with my actual projections.

Let’s start by assuming you are applying for a $50,000 loan for your software business in order to advertise and market your product.  You may want to attach a narrative section similar to the following:

Sales Projection Narrative

We assume that the $50,000 loan will allow us to drive 50,000 targeted visitors to our website over a 3 month period.

We assume a $1 cost per click based on the cost per click estimates provided to us from the Google Adwords Keyword Tool.

We assume that we will achieve a 3% conversion rate.  To date, approximately 2.75% of our website visitors have converted into paying customers.  With A/B testing we believe we can increase our conversion rate to 3%.

We assume that the average customer will pay $49 per month for our product based on our performance over the last 12 months.

We assume we will lose 7% of customers each month.

Sales Projection Table

Based on those assumptions our sales projections for the next 12 months are as follows:

Including a narrative will help your audience understand how and why you came up with the numbers that you did, and should help to instill confidence in the future prospects of your business.

About the Author:  Adam Hoeksema is the Co-Founder of ProjectionHub.  ProjectionHub is a web-based application that helps business owners create financial projections without the need for a PhD in spreadsheet modeling.

What is Cost of Goods Sold for a Service Business?

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What Is The Cost Of Goods Sold For A Service Business?

When it comes to the cost of goods sold for services, the cost of goods sold for a service business doesn’t quite make sense. If you want to be precise, Cost of Goods (COGS) is only used for product based businesses.

So what if you operate an IT service company, what is your COGS? What if you develop and sell software? How do you determine the cost of goods sold for a service business?

Rather than using the term cost of goods sold, it would be best to use a similar term — Cost of Revenue.

What is Cost of Revenue for Service Based Businesses

Now I want to dive deep into exactly what Cost of Revenue is and what it is not. I also want to help you determine your cost of revenue for a service company on a per unit basis.

Definition from Investopedia:

“The total cost of manufacturing and delivering a product or service. Cost of revenue information is found in a company’s income statement, and is designed to represent the direct costs associated with the goods and services the company provides. Indirect costs, such as salaries, are not included.”

What Is Included In Cost of Revenue For A Service Company

Raw Materials – Service based businesses don’t have “raw materials” but if you were a product based business, you would include all raw materials used to produce the product in cost of revenue.

Direct Labor – Direct labor should be included in the cost of revenue for a service company.  Let’s say you own a junk removal business, and you get a job to clean up an old building.  It will be a 3 hour job for your team of 3 guys.  Each guy is paid $10 per hour.  Your employees wages is considered cost of revenue, so in this scenario you would have $90 in direct labor costs that would be included in your cost of revenue.

Shipping Costs – Let’s say you own an accounting firm that audits companies.  At the end of the audit you print your report and mail copies to each member of the client’s board of directors.  If you end up paying $100 to ship your report to the board, that $100 should be included in cost of revenue because it is a necessary expense that you incur as part of your service.

Sales Commissions – Sales commissions are another common expense that should be included in the cost of revenue for a service company. You only incur sales commission  expenses when you generate revenue through a sale of your product or service; therefore, sales commissions should be included in your cost of revenue.

A common rule of thumb when determining what is cost of revenue and what is not, is to simply ask yourself, “Would I incur this expense if I did not make a sale today?”

What Is Not Included In Cost Of Revenue For A Service Company

Now I will go through a list of expenses that you would incur whether or not you sold a product or service. These expenses should not be included in the cost of revenue for a service company.

Salaries – Employee salaries are not directly tied to revenue, in other words, your employees are paid the same salary each month whether they sell more or less goods and services.

Rent – Your rent expense is another overhead cost that is not included in cost of revenue.

Phone Service – The phone bill will arrive each month whether you sell 100 widgets or 1,000,000 widgets; therefore, it is not to be considered part of your cost of revenue.

Utilities – Now this might be up for debate because your utilities might go up or down based heavily upon your sales volume, but even if you did not sell any product or service next week wouldn’t you still turn the lights on?  Wouldn’t you still heat or call your office building?  In general your utilities are not considered as past of Cost of Goods Sold or Cost of Revenue.

Cost of Revenue Per Unit

Once you have determined which expenses to include in the cost of revenue for a service company, you should come up with your cost of revenue per unit. Cost of Goods Sold per unit and Cost of Revenue per unit is the model we use with our ProjectionHub application.

Essentially you need to break down each expense that your cost of revenue is composed of into a unit cost. For example:

Let’s say you own a tree service company.  Let’s go through the cost of revenue for one day-long tree service job.  Your cost of revenue might look like this:

Sales Commission – You might have a sales representative who secured the job for you, who you will need to pay a commission.  Let’s assume you give a 15% sales commission.

Fuel Costs – You have to drive out to the job site with a fleet of 3 vehicles and equipment.  This is an expense that you would only incur if you got the job; therefore, it should be included in cost of revenue.  The job site is 50 miles away, so each vehicle will drive a 100 mile round trip.  So 300 miles at .50 cents a mile is $150.

Direct Labor – Lastly, you will have direct labor costs.  Let’s assume it takes a team of 5 to complete the job in 8 hours. You pay them each $10 per hour.

Now that you have identified your 3 items that make up cost of revenue, you need to bring this down to cost of revenue per unit.  The unit that most service businesses use is hours.  Let’s say you charge the client $300 per hour.  Your cost per hour would look something like this:

5 workers x $10 = $50 per hour
15% of $2,400 job = 360 sales commission / 8 hours = $45 per hour
$150 / 8 hours = $18.75 per hour

Add that together and you get $113.75 per hour as your cost of revenue.

$300 – $113.75 = $186.25 is your gross profit.

There you have it. That is how you calculate both the cost of revenue for a service company, the cost of goods for a service company, and gross profit for a service based business. Once you’ve determined your COGS, then you can figure out how to reduce your cost of goods sold.

Use our auto body shop financial template or medical office financial projections template if you are looking for a full financial projection template for a services based business. You can also use our Professional Services template or check out our excel financial projection template library which may prove to be useful for your own project.

Why You Need to Include Assumptions With Your Financial Projections

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By Adam Hoeksema

One of the most important aspects of your financial projections are your assumptions.  Most entrepreneurs and small business owners fail to include written assumptions with their financial projections.  This is a huge problem.  Why?  Typically you create financial forecasts in order to secure a loan or investment.  That means someone else is going to be reviewing your projections.  How are they supposed to know how you came up with your projections unless you tell them?  There are 2 very important reasons to include a tab in your spreadsheet file with a set of assumptions used to build your projections.

1.  Ability to Quickly Change Assumptions – You need to set up your assumptions on a spreadsheet tab in such a way that you can quickly change the numbers and the results will flow through to your projected financial statements.  For example, you might assume $4 gas prices, $8 minimum wage, and a 7% sales tax rate.  Your audience will want to be able to see how $3 gas prices and $5 gas prices impact your bottom line.

Maybe your business hires a number of minimum wage workers, and there is legislation proposing a significant increase in the minimum wage.  If this is the case you need to build your financial model in such a way that you can quickly change the minimum wage in just one cell, and it will automatically flow through to the rest of the statements.

2.  Demonstrate your Understanding of Your Business – A banker or potential investor is going to look at your assumptions and make a judgment about you and your understanding of your business.  If your assumptions are data driven and logical, you will likely instill confidence in your audience.

On the other hand if your assumptions look something like this you are probably in trouble:

Assumption 1 – Our industry is a billion dollar market
Assumption 2 – We believe we can get 1% of that market

These kind of top-down assumptions show that you don’t truly understand your market or what it is going to take to generate that level of sales and distribution.

Your assumptions make or break your financial forecast.  Without an easy way for your audience to quickly change your assumptions and review various scenarios your financial projections will be essentially worthless.

You can get started creating your cash flow and profit and loss projection right now with ProjectionHub.

How to Finance a Capital Intensive Business

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By Adam Hoeksema

Every week I deal with businesses that are growing quickly, but just can’t find enough cash to finance their growth.  Certain businesses are much more capital intensive than others.  In general, physical product based businesses are far more capital intensive to start and grow than a software business or a service based business.  It can take millions of dollars to produce, sell and distribute a physical product on a national level. If you are facing this struggle, I don’t need to explain why it is so difficult to finance a capital intensive business, rather I hope to provide some advice to help you find success in this type of business. View our production forecasting excel template to get started.

1.  Find an Investor, Be Willing to Give Up Equity – There was recently a great example on Shark Tank.  A business owner had developed an interesting product, 100% recyclable shoes, but needed some cash to take it to the next level.  The business owner asked for $50,000 in order to create the mold of the product and build up some inventory, but the sharks weren’t biting.  Why?  Mark Cuban said something to the effect of, “if you are successful you will drive yourself into bankruptcy.”  Here is why.  If the company got a large order from a big box retailer like Target, it would probably take the entire $50,000 just to fulfill that order.  Then Target would pay him in 90 days.  What if the shoes were selling great, and Wal-Mart placed an order, and then Kohl’s placed an order?  He would still be waiting to get paid from the initial $50k order, so he would have to borrow even more money to fulfill the 2 new orders.  The product’s success could actually bankrupt the company because they would reach a point where they could not borrow any more money, which means they wouldn’t be able to fulfill new sales.

So here is what happened.  One of the sharks made him an offer.  He offered to fund his entire business for 80% of the company.  So he gave up 80% of his company, but in return he can have the freedom to go out and generate sales.  On his own he never would have made it in the capital intensive business of shoe manufacturing, but because he was able to find an investor, and was willing to give up significant equity, his 20% stake in this business will probably turn him into a millionaire very soon.

2.  Develop a Strategic Partnership – I have worked with one client who was able to find a private company that was willing to fund his business in exchange for a cut of the profits.  This is truly the best possible solution.  Here is why.  This particular business dealt with purchasing expensive used medical equipment, repairing it, and reselling the equipment.  The bottleneck in the business is the fact that the used equipment cost $10,000 to $15,000 per unit.  He could easily find 10 units to repair and resell in a moment, but he did not have the $125,000 it would take to purchase those units, so he purchased 1 or 2 units a time.

When he partnered with this strategic partner, he was given a large line of credit to purchase and resell as much equipment as he wanted.  The deal was contingent on giving half the profit made on the sale back to the partner.  This was a great solution for this particular startup because he was able to grow his business by 650% in a year without giving up any equity in the business.  Now he has generated enough sales that he can approach a traditional bank and secure a traditional line of credit which will be far cheaper than giving up 50% of his profits.  This strategic partnership was a great deal for both parties involved.

So in order to succeed in a capital intensive startup business you can’t rely on a 1 time loan.  It is not a sustainable solution, in fact your success may drive you right into the ground.  Instead, I encourage you to find investors or strategic partners who are willing to put unlimited cash in your hands for as long as you can provide a return on that investment.

About the Author:  Adam Hoeksema is the Co-Founder of ProjectionHub.  ProjectionHub is a web application that helps small business owners create a set of financial projections without the need to have a PhD in spreadsheet modeling.

How to Forecast Sales for an iPhone Application

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By Adam Hoeksema

There are tens of thousands of iPhone app developers out there hoping to hit it big and develop the next app that sells a million copies.  The problem is that when you remove the top 10% of iPhone apps from the conversation, then the average app sells just over 11,600 copies. With the average sales price for an iPhone app hovering around $1.50, and by the time Apple takes its commission, the average app will generate just over $10,000 in sales. Considering the cost of mobile app development, the average iPhone app is probably losing money, or just breaking even.  In order to increase your chances of building a profitable app, you need to do a bit of research first and determine the market potential for your app, and then work your way up to a final sales forecast.

Now I am going to outline exactly how I would forecast sales for an iPhone application.  Let’s take the popular bubble level app.  A level allows you to place a device on a surface and determine how level that surface is.  You might use it for hanging a picture, pouring a concrete floor, or building a house.  A traditional level is a tool used by millions of people everyday.  So let’s say that you wanted to develop the first iPhone app that functioned as a level.  How would you begin to forecast sales for this tool?  Here is what I would suggest:

1.  Start with the Google Adwords Keyword Tool – I would start by using the Google Adwords Keyword Tool to get an estimate of the number of people that are searching for a level tool each month.  Here is what I found for just a few of the relevant keyword phrases:

  • Bubble Level – 165,000 monthly searches
  • Level Tool – 110,000 monthly searches
  • Laser Level – 135,000 monthly searches

These three pieces of data give you an idea of your market potential.  With 410,000 monthly searches represented in just 3 search phrases on Google, it is safe to say that there are at least 1 million monthly searches for level related keyword phrases between all of the major search engines.  So for simplicity, let’s assume that there are 1 million people searching online for a level each month.

2.  Other Markets – To be clear, you will probably be able to sell many units of your app to people who never performed a search for a level.  For example, a worker on a construction job may have purchased your app, when he pulls out his phone to use the app the entire crew working with him sees the app and immediately purchase the app for their own phone.  There are other markets, but it is difficult to quantify when you are forecasting future sales.  You just don’t know how many times someone will see one of your customers using the app and purchase it themselves, so in order to stay conservative, I would base my sales projections on search data.

3. Start to Breakdown the Total Market – Now that we know there are at least 1 million searches per month for a level tool, it is time to start breaking that number down to determine how much of that market you can realistically capture.  Here is how I would do it:

  • Let’s assume the 1 million searches are representative of the US population
  • 88% of adults in the US have cell phones ( 1 million x 88% = 880,000 )
  • 53% of adults cell phone users have smartphones (53% x 880,000 = 466,400)
  • 30% of smartphones are iPhones (30% x 466,400 = 139,920 searches)

So after you whittle away at the original 1,000,000 monthly searches you find that only 139,920 of those 1,000,000 searchers have an iPhone.

4. Advertising Click Through Rate – Google Adwords is incredibly powerful because you can target ads for specific keyw

ord phrase searches on specific devices.  So you might set up an ad campaign that targets all of the level tool related keyword phrases that is only displayed when the user searches using an iPhone.

Google says that the average click through rate for an adwords ad is 2%, so now let’s assume that of the 139,920 searches per month that occur on an iPhone, 2% will click through on your ad.  139,920 x 2% = 2,800 monthly clicks.

5. Sales Conversion Rate – Now that you know you will have 2,800 visits each month, you need to determine a conversion rate for those visitors.  You can assume that those 2,800 are highly qualified and targeted visitors, but conversion rates are still going to be no more than 20%.  Let’s say you convert 20% to purchase a $1.99 Level Tool App.  2,800 x 20% x $1.99 = $1,115 per month.

6. Additional Sales Sources – Now that you have a monthly sales projection for your app based on Google Advertising, you might want to add sales projections from other sources.  For example, you might be able to find data that suggests each person who buys your app will result in 0.25 additional app sales because they tell others about the app, share it with their friends or co-workers, or share via social networks.  Maybe you are able to bring in strategic partners to increase sales.  For example, maybe one of the major level tool manufacturers would sell a copy of your app with every physical level they sell.

At the end of the day you need to create your sales projections based on data, or risk losing thousands of dollars.  Many apps cost more than $10,000 to develop and maintain, but with average sales for an app only reaching approximately 10 grand it is app developer beware.

You can get started creating your profit and loss projections today utilizing the ProjectionHub web application or view our mobile app business financial template.

How to Get a Loan for a Software Startup

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As the Director of an SBA Microloan Program, I get a number of microloan requests from software developers looking for a small loan to build their software application.  This is not an easy type of loan to fund.  Traditionally, software startups secure funding from investors or friends and family, but it is possible to secure a loan for a software startup.  So today I wanted to provide 3 tips on how to secure a small loan for software development.

1.  Have a Backup Plan – I think the most important factor in your loan application is a section where you outline your backup plan.  Providing a loan to help fund software development is incredibly risky.  What if you spend all of the loan money, build the software product and find out that your potential customers are not willing to pay for the product?  Since you have no proven sales, you are going to need to demonstrate a backup plan to the lenders.

If you are a software developer in 2012, I am sure you are able to find work.  You may have a day job now, or work on a project by project basis as a freelance developer, but ultimately you should be able to find work if your startup fails.  If you can prove that you have generated enough personal income in the past to make the loan payments, and show that you are willing to go back to a day job if the business fails, you should be able to put the lender at ease.

2.  Prove the Market – You need to prove, as best you can, that there is a market for your product.  There are a number of ways to do this:

  • Competitors are Profitable – Maybe the software you are developing is a direct competitor to a company who is already profitable.
  • Google Adwords Keyword Tool – You can use the Google Adwords Keyword Tool to find out how many people are searching for keyword phrases related to your product.  For example, the ProjectionHub software helps entrepreneurs create financial projections, and we know that each month there are approximately 15,000 searches on Google alone for the keyword phrase “Financial Projections”
  • List of Interested Customers – Maybe you set up a 1 page website with a form for potential customers to fill out if they are interested in your software when it launches.  If you are able to generate significant interest from your pre-launch page, then there is probably a market.


3.  Pre-sales  – You might be able to talk to potential customers and actually have them sign a letter of intent that states they plan to purchase access to your software once it is completed.  These letters will immediately prove the market to the lender, and help them run some preliminary numbers to determine whether or not you will be able to pay back the loan based on those projected sales.

Getting a loan for a software startup is not easy, but it is possible if you position yourself the right way.
You can get started with your loan application today by creating a set of financial projections for free using ProjectionHub.  Good luck!

Financial Projection Tool Released to the Public

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ProjectionHub, a web application that helps entrepreneurs create realistic financial projections without the need for a PhD in spreadsheet modeling, has announced the public beta release of the ProjectionHub web application.

During the beta test period, startups and small businesses can create a set of 12 month financial projections for their business for free.  This includes a 12 month cash flow and 12 month profit and loss projection.  ProjectionHub plans to continuously release new features and improve the design and flow of the application based on feedback from initial users.

ProjectionHub Co-Founder, Adam Hoeksema, explained, “Working with startups and small businesses everyday I realized that a majority of business owners have no formal accounting background, and many of them aren’t proficient with Excel or other spreadsheet tools.  This makes it nearly impossible for these business owners to create realistic and accurate financial projections on their own.”  Adam went on to say, “most try to utilize spreadsheet templates to create their statements, but get confused or frustrated and give up.  ProjectionHub is unique because we can offer video explanations and tutorials within the application to walk you through the most confusing parts of the process.”

ProjectionHub is a web application that helps entrepreneurs create financial projections for their business without the need to be a PhD in spreadsheet modeling.  For more information visit http://www.projectionhub.com or email Support at support@projectionhub.com.

A Loan Officer’s Biggest Pet Peeve

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As the manager of an SBA Microloan program serving startups and small businesses in the Midwest, I get to see a number of “interesting” loan applications. The quality of the business, the business owner, and the loan application proposal vary greatly between applicants, but one aspect of the loan application that is always a problem is the business financial projections. It is incredibly difficult for an entrepreneur with no accounting or finance background to complete a set of financial projections on their own, so the solution that most loan officers try to use is an excel spreadsheet template that they give to every loan applicant to complete.

So far so good right? The problem is that the template is returned, completed, but undoubtedly has some pretty strange projections.

A million in sales in year 1?
Your cost of goods sold is only 5%?
You are going to start by hiring 7 people before you have any sales?

As a loan officer, my biggest pet peeve is a set of financial projections without a written narrative included. Any given set of projections will probably have dozens of assumptions, but typically business owners do not include their assumptions with their projections.

A potential lender needs to be able to review your assumptions and make their own determination as to whether or not you might be able to achieve those goals. Additionally, lenders will want to poke and prod your assumptions to see how changing something like the price of gas will impact your bottom line.

So PLEASE make sure to include a narrative of your assumptions when you create a set of financial projections.

You can get started with your projections right now.

How to Create a Cash Flow Projection with ProjectionHub

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For many startups and small businesses cash flow, or the lack of cash flow, is the most important factor when it comes to business survival.  Entrepreneurs must be on top of their cash flow, and be able to create cash flow projections for the future.  The purpose of this guide is to walk you through the process of creating a 12 month cash flow projection for your business using ProjectionHub.

ProjectionHub is a web-based tool that helps business owners create financial projections without the need to be a PhD in spreadsheet modeling.

Much of this guide is identical to the guide on How to Create an Income Statement Projection with a few additions and subtractions specifically related to cash flow.

Here is how it works:

  1. Enter Financial Projection Info
  2. ProjectionHub Automatically Creates Your Spreadsheets
  3. Spreadsheet Projections Are Emailed to You
  4. Download Your Spreadsheets

Let’s get started.

1.  Contact Information – First we are going to ask you for your contact information.  This accomplishes 2 things:

  • Creates a ProjectionHub Account – By providing your email address and a password we are able to create an account for you.  Now you will be able to quit in the middle of your projections and all your data will be saved and ready for you to jump back into at any time simply by logging in.
  • Includes Contact Info on Spreadsheets – One of the most common mistakes made by entrepreneurs is neglecting to include their contact information with their financial projections.  Simply enter your contact info once and we will include it on every page of your projections.

2.  Start Creating a 12 Month Cash Flow Projection

Simply click to start creating your 12 month cash flow statement projection.  Depending on the size of your business, your familiarity with creating financial projections and how much you prepared before getting started, you should budget between 10 minutes and an hour to complete your projections for this 12 Cash Flow Statement.
3. How Will You Project Sales?

The next step is to determine how you will project your sales numbers.  ProjectionHub gives you three options:

  • Project sales for each individual product or service (Choose this option if you only have a few products and/or services)
  • Project sales for product lines or groups of services
  • Project sales in total – (If you have hundreds of products and services, you may want to choose this option)

4.  Enter Sales Projections

Creating accurate and logical sales projections can be incredibly difficult.  Anyone can throw some numbers into ProjectionHub and come up with a set of projections, but your projections need to be based on data.  They need to be bottom’s up.  They need to include logical assumptions.  I have created a short instructional video on how to create sales projections:

Once you know what you are going to forecast for sales, you can enter each individual product or service into a table.
You will notice that we ask for the product name, the sales price per unit, and how many days it will take you to get paid.  The days to get paid is not important for your income statement, but it can become incredibly important information for your cash flow projections.

Next you will enter in the number of units you intend to sell for each product for the next 12 months.

Finally, you can add additional products or services to your sales projections quickly and easily.

5.  Project Your Cost of Goods Sold

Now you need to start projecting your expenses, starting with, Cost of Goods Sold.  In this video I explain what cost of goods sold is and what it is not.

Now you simply need to enter the direct labor, material costs, and variable expenses for each product or service:
6.  Enter General, Administrative and Selling Expenses

Now we need to project all of your General, Administrative, and Selling expenses in the tables below:

The first question we ask is “How many days does it take you to pay your bills?”  Again this question will impact your statement of cash flows, not your income statement.

Next you will need to input your corporate income tax rate if you anticipate paying corporate taxes.

Lastly, you will need to enter projected expenses for the first 12 months for various categories like:

  • Accounting
  • Advertising
  • Rent
  • Utilities, etc.

7.  Cash on Hand

Next you simply need to include how much cash you have on hand currently.  That will help us create your cash flow projection.

8.  Download Financial Projections

You are done!  Now you can download your financial projections as an Excel document.

Simply click the “Download Income Statement”

9. View and Edit Your Financial Statement

There are 2 ways you can edit your financial projections.

  1. Edit the Excel Spreadsheet – The first tab of your Excel Spreadsheet file will be a data entry sheet.  You can change the data directly in the Excel file to change your projections.  If you are not comfortable with Excel, then I suggest logging back into ProjectionHub and editing your financials.
  2. Login and Edit in ProjectionHub – Simply go to http://www.projectionhub.com and login at the top right corner.  Use your email address and password to login, and edit the data in your projections.

There you have it, a detailed guide on how to create an income statement projection using ProjectionHub.  Get started now!

How to Create an Income Statement Projection with ProjectionHub

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For many startups and small businesses you are required to create an income statement projection, or a profit and loss projection, when applying for a loan or potential investment.  The purpose of this guide is to walk you through the process of creating a 12 Month Profit and Loss Projection/Income Statement for your business using ProjectionHub.

ProjectionHub is a web-based tool that helps business owners create financial projections without the need to be a PhD in spreadsheet modeling.

Here is how it works:

  1. Enter Financial Projection Info
  2. ProjectionHub Automatically Creates Your Spreadsheets
  3. Spreadsheet Projections Are Emailed to You
  4. Download Your Spreadsheets

Now I want to dig into the details

1.  Contact Information – First we are going to ask you for your contact information.  This accomplishes 2 things:

  • Creates a ProjectionHub Account – By providing your email address and a password we are able to create an account for you.  Now you will be able to quit in the middle of your projections and all your data will be saved and ready for you to jump back into at any time simply by logging in.
  • Includes Contact Info on Spreadsheets – One of the most common mistakes made by entrepreneurs is neglecting to include their contact information with their financial projections.  Simply enter your contact info once and we will include it on every page of your projections.

2.  Start Creating a 12 Month Income Statement Projection

Simply click to start creating your 12 month income statement projection.  Depending on the size of your business, your familiarity with creating financial projections and how much you prepared before getting started, you should budget between 10 minutes and an hour to complete your projections for this 12 month Income Statement.

3. How Will You Project Sales?

The next step is to determine how you will project your sales numbers.  ProjectionHub gives you three options:

  • Project sales for each individual product or service (Choose this option if you only have a few products and/or services)
  • Project sales for product lines or groups of services
  • Project sales in total – (If you have hundreds of products and services, you may want to choose this option)

4.  Enter Sales Projections

Creating accurate and logical sales projections can be incredibly difficult.  Anyone can throw some numbers into ProjectionHub and come up with a set of projections, but your projections need to be based on data.  They need to be bottom’s up.  They need to include logical assumptions.

Once you know what you are going to forecast for sales, you can enter each individual product or service into a table.

You will notice that we ask for the product name, the sales price per unit, and how many days it will take you to get paid.  The days to get paid is not important for your income statement, but it can become incredibly important information for your cash flow projections.

Next you will enter in the number of units you intend to sell for each product for the next 12 months.

Finally, you can add additional products or services to your sales projections quickly and easily.

5.  Project Your Cost of Goods Sold

Now you need to start projecting your expenses, starting with, Cost of Goods Sold.

Now you simply need to enter the direct labor, material costs, and variable expenses for each product or service.

6.  Add your Equipment, Useful Life and Salvage Value

Next you will need to enter any equipment that you have.

There are 3 pieces of information that we need for each piece of equipment in order to properly calculate depreciation expense.  Before I get into that, let me explain depreciation expense.

Depreciation is a non-cash expense.  It works like this.  Certain assets (buildings, equipment, machinery etc) lose value each year.  The value that is lost is called depreciation.  Depreciation is calculated as follows:

Depreciation = (Value or Purchase Price – Salvage Value or Dollar Value at End of Useful Life) / Number of Years Equipment will Last

Value – The value of your equipment is typically what you paid for it.  If you paid $100 for a desk, then you should enter $100 for the value of the desk.

Useful Life – The useful life of a piece of a equipment is the number of years you expect the equipment to last.  For example, we might expect a computer to last 4 years, so the useful life is simply 4 years.

Salvage Value – This is the dollar amount that you expect to be able to sell the equipment for after you are done using the equipment.  For example, you might just throw your old computer away, so the salvage value is zero, but an old desk might be worth something to someone else even after you are done using it.  If you expect to be able to sell your desk for $50, then the salvage value is $50.

7.  Enter General, Administrative and Selling Expenses

Now we need to project all of your General, Administrative, and Selling expenses.

The first question we ask is “How many days does it take you to pay your bills?”  Again this question will impact your statement of cash flows, not your income statement.

Next you will need to input your corporate income tax rate if you anticipate paying corporate taxes.

Lastly, you will need to enter projected expenses for the first 12 months for various categories like:

  • Accounting
  • Advertising
  • Rent
  • Utilities, etc.

8.  Download Financial Projections

You are done!  Now you can download your financial projections as an Excel document.

Simply click the “Download Income Statement”
9. View and Edit Your Financial Statement

Below is a screenshot of our completed financial statement projection.

There are 2 ways you can edit your financial projections.

  1. Edit the Excel Spreadsheet – The first tab of your Excel Spreadsheet file will be a data entry sheet.  You can change the data directly in the Excel file to change your projections.  If you are not comfortable with Excel, then I suggest logging back into ProjectionHub and editing your financials.
  2. Login and Edit in ProjectionHub – Simply go to https://www.projectionhub.com and login at the top right corner.  Use your email address and password to login, and edit the data in your projections.

There you have it, a detailed guide on how to create an income statement projection using ProjectionHub.