How to make a P&L forecast?

You will find a P&L forecast tailored to your project in our list of 200+ financial plans

All our financial plans do include a P&L forecast.

How can you create a P&L forecast without feeling overwhelmed?

In this article, we provide a free tool to do so. If you're looking for something more tailored to your specific project, feel free to browse our list of financial plans, customized for over 200 different project types here.

We'll also address the following questions:

How can one determine projected revenues for a P&L forecast?
What fixed costs should be included in a P&L forecast?
How can variable costs be estimated in a P&L forecast?
What net profit margin should be targeted for a realistic P&L forecast?
How can unforeseen expenses be integrated into a P&L forecast?
What tools can be used to create a P&L forecast without feeling overwhelmed?
How can the accuracy of a P&L forecast be validated?

Here Are the Steps to Create a P&L Forecast Without Overwhelm

To skip all these steps, you can simply download a financial forecast tailored to your industry.

• 1. Identify Your Revenue Streams:

  Determine the different ways your business will generate income. For example, if you are planning a subscription service, outline the various subscription tiers and their respective prices.

• 2. Estimate Subscriber Numbers:

  Project the number of customers or subscribers you expect for each revenue stream in the first year. This can be based on market research, competitor analysis, or industry benchmarks.

• 3. Calculate Monthly Revenue:

  Multiply the number of customers or subscribers by the price of each tier to get the monthly revenue for each stream. Sum these amounts to get the total monthly revenue.

• 4. Project Annual Revenue:

  Multiply the total monthly revenue by 12 to estimate the annual revenue.

• 5. Identify Fixed Costs:

  List all the fixed costs your business will incur, such as rent, salaries, and utilities. These are costs that do not change with the level of production or sales.

• 6. Calculate Monthly Fixed Costs:

  Sum all the fixed costs to get the total monthly fixed costs.

• 7. Project Annual Fixed Costs:

  Multiply the total monthly fixed costs by 12 to estimate the annual fixed costs.

• 8. Identify Variable Costs:

  List all the variable costs that change with the level of production or sales, such as transaction fees and customer support costs.

• 9. Calculate Monthly Variable Costs:

  Estimate the variable cost per customer or subscriber and multiply by the total number of customers or subscribers to get the total monthly variable costs.

• 10. Project Annual Variable Costs:

  Multiply the total monthly variable costs by 12 to estimate the annual variable costs.

• 11. Calculate Total Annual Costs:

  Add the annual fixed costs and the annual variable costs to get the total annual costs.

• 12. Determine Annual Profit:

  Subtract the total annual costs from the total annual revenue to determine the annual profit.

• 13. Review and Adjust:

  Review your projections and adjust as necessary based on new information or changes in your business plan. This will help you stay on track and make informed decisions.

An Easy-to-Customize Example

This example is simplified for clarity. For a more accurate estimate without doing the calculations, use one of our financial forecasts tailored to 200 business types.

To help you better understand, let's use a made-up example of a startup planning to launch an online subscription service for fitness coaching.

First, identify your revenue streams: assume you plan to offer three subscription tiers—Basic at $10/month, Standard at $20/month, and Premium at $30/month.

Estimate the number of subscribers for each tier in the first year: 500 for Basic, 300 for Standard, and 200 for Premium.

Calculate the monthly revenue: (500 * $10) + (300 * $20) + (200 * $30) = $5,000 + $6,000 + $6,000 = $17,000.

Multiply by 12 to get the annual revenue: $17,000 * 12 = $204,000.

Next, estimate your costs. Fixed costs include website hosting ($1,000/month), marketing ($2,000/month), and salaries for two employees ($4,000/month each).

Total fixed costs per month: $1,000 + $2,000 + $8,000 = $11,000.

Annual fixed costs: $11,000 * 12 = $132,000.

Variable costs include customer support and transaction fees, estimated at $2 per subscriber per month.

Total variable costs per month: (500 + 300 + 200) * $2 = 1,000 * $2 = $2,000.

Annual variable costs: $2,000 * 12 = $24,000.

Add fixed and variable costs to get total annual costs: $132,000 + $24,000 = $156,000.

Subtract total costs from total revenue to get the annual profit: $204,000 - $156,000 = $48,000.

By breaking down the forecast into manageable steps and using specific numbers, you can create a P&L forecast without feeling overwhelmed, resulting in an estimated annual profit of $48,000 for the first year.

What Should Be Included in a P&L Forecast?

Here are the key elements that should be included, all of which you will find in our financial forecasts tailored to 200+ different business projects.

Element	Description	Importance	Frequency
Revenue	Total income generated from sales of goods or services.	Critical for understanding business performance.	Monthly, Quarterly, Annually
Cost of Goods Sold (COGS)	Direct costs attributable to the production of the goods sold by a company.	Essential for calculating gross profit.	Monthly, Quarterly, Annually
Gross Profit	Revenue minus COGS.	Indicates the efficiency of production and sales processes.	Monthly, Quarterly, Annually
Operating Expenses	Expenses required for the day-to-day functioning of the business, excluding COGS.	Necessary for understanding the cost structure.	Monthly, Quarterly, Annually
Operating Income	Gross profit minus operating expenses.	Shows the profitability from core business operations.	Monthly, Quarterly, Annually
Other Income and Expenses	Non-operating income and expenses, such as interest and taxes.	Provides a complete picture of financial performance.	Monthly, Quarterly, Annually
Net Income	Total profit after all expenses have been deducted from revenue.	Key indicator of overall profitability.	Monthly, Quarterly, Annually
EBITDA	Earnings before interest, taxes, depreciation, and amortization.	Useful for comparing profitability between companies.	Monthly, Quarterly, Annually
Depreciation and Amortization	Non-cash expenses that reduce the value of assets over time.	Important for understanding asset value and tax implications.	Monthly, Quarterly, Annually
Interest Expense	Cost incurred by an entity for borrowed funds.	Necessary for understanding financial leverage.	Monthly, Quarterly, Annually
Tax Expense	Total amount of taxes owed to the government.	Critical for net income calculation.	Monthly, Quarterly, Annually
Non-Recurring Items	One-time gains or losses that are not expected to recur.	Important for understanding true operational performance.	As Occurred

Our financial forecasts are comprehensive and will help you secure financing from the bank or investors.

Common Questions You May Have

Reading these articles might also interest you:
- A free example of a monthly financial projection
- How to forecast your company's financials?
- How to forecast operating income in Excel?

How do I determine the key drivers for my P&L forecast?

Identifying key drivers involves analyzing historical data to understand what factors most significantly impact your revenue and expenses.

Common key drivers include sales volume, pricing strategies, cost of goods sold (COGS), and operating expenses.

Focus on the variables that have the most substantial effect on your bottom line to create a more accurate forecast.

What is a reasonable growth rate to assume for my revenue projections?

Growth rates can vary widely depending on your industry and market conditions, but a typical small business might assume a growth rate of 5% to 10% annually.

It's essential to base your growth rate on realistic assumptions, considering both historical performance and market trends.

Consult industry reports and benchmarks to validate your growth rate assumptions.

How can I estimate my future operating expenses accurately?

Start by categorizing your operating expenses into fixed and variable costs, then analyze historical spending patterns for each category.

Consider any planned changes, such as new hires or increased marketing spend, and adjust your estimates accordingly.

Using a percentage of revenue method can also help, where operating expenses are projected as a consistent percentage of your forecasted revenue.

What level of detail is necessary for a P&L forecast?

The level of detail should be sufficient to provide actionable insights but not so granular that it becomes overwhelming.

Typically, breaking down revenue and expenses into major categories and subcategories is adequate.

Ensure that each line item is meaningful and contributes to your overall financial picture.

How do I account for seasonality in my P&L forecast?

Analyze historical data to identify seasonal trends and patterns in your revenue and expenses.

Adjust your monthly or quarterly forecasts to reflect these seasonal variations, ensuring more accurate projections.

For example, if your business experiences a 20% increase in sales during the holiday season, factor this into your forecast.

What is an acceptable profit margin for my industry?

Profit margins vary by industry, but a general benchmark for many businesses is a net profit margin of 10% to 15%.

Research industry reports and financial statements of similar companies to determine a reasonable profit margin for your business.

Adjust your expectations based on your specific business model and market conditions.

How often should I update my P&L forecast?

It's advisable to update your P&L forecast at least quarterly to reflect any changes in your business environment or performance.

More frequent updates, such as monthly, can provide even greater accuracy and allow for timely adjustments.

Regular updates help ensure that your forecast remains relevant and useful for decision-making.