A free example of a 3-year income statement

You will find a 3-year income statement tailored to your project in our list of 200+ financial plans

All our financial plans do include a 3-year income statement.

How can you create a 3-year income statement without getting 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 future revenues be estimated for a startup?
What are the main costs to include in a three-year income statement?
How can a realistic growth rate for revenues be determined?
What is considered a healthy net profit margin for a new business?
How can seasonal fluctuations in revenue forecasts be managed?
What percentage of revenue should be reinvested in the business?
How can marketing expenses be forecasted for the next three years?

Here Are the Steps to Create a 3-Year Income Statement

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

• 1. Estimate Initial Sales:

  Begin by estimating the number of units you plan to sell in the first year and the price per unit. Consider factors such as market demand, competition, and your marketing strategy. Project a reasonable annual growth rate for the next two years.

• 2. Calculate Revenue:

  Multiply the estimated number of units sold by the price per unit to determine your revenue for each of the three years. Apply the annual growth rate to project the revenue for the second and third years.

• 3. Determine Cost of Goods Sold (COGS):

  Estimate the cost to produce each unit. Multiply this cost by the number of units sold each year to calculate the COGS for each of the three years.

• 4. Calculate Gross Profit:

  Subtract the COGS from the revenue for each year to determine your gross profit.

• 5. Estimate Operating Expenses:

  Identify and estimate your annual operating expenses, such as marketing, salaries, rent, utilities, and other overhead costs. Sum these expenses to get the total operating expenses for each year.

• 6. Calculate Operating Income:

  Subtract the total operating expenses from the gross profit for each year to determine your operating income.

• 7. Consider Taxes:

  Estimate the tax rate applicable to your business. Calculate the taxes for each year by applying this rate to your operating income. Subtract the taxes from the operating income to get your net income after taxes.

• 8. Review and Adjust:

  Review your projections and adjust as necessary based on new information or changes in your business plan. Ensure that your estimates are realistic and achievable.

What Should Be Included in a 3-Year Income Statement?

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	Purpose	Example
Revenue	Total income generated from sales of goods or services.	To show the total earnings before any expenses are deducted.	Sales Revenue, Service Revenue
Cost of Goods Sold (COGS)	Direct costs attributable to the production of the goods sold by a company.	To determine the gross profit by subtracting COGS from revenue.	Raw materials, Direct labor
Gross Profit	Revenue minus the cost of goods sold.	To show the profit a company makes after deducting the costs associated with making and selling its products.	Revenue - COGS
Operating Expenses	Expenses required for the day-to-day functioning of the business.	To show the costs incurred from normal business operations.	Rent, Utilities, Salaries
Operating Income	Gross profit minus operating expenses.	To show the profit from regular business operations.	Gross Profit - Operating Expenses
Other Income/Expenses	Income or expenses not related to the core business operations.	To account for non-operating financial activities.	Interest income, Gains or losses from investments
Pre-Tax Income	Operating income plus other income minus other expenses.	To show the income before tax obligations are considered.	Operating Income + Other Income - Other Expenses
Income Tax Expense	Taxes owed to the government based on pre-tax income.	To show the tax liability of the company.	Federal, State, Local taxes
Net Income	Pre-tax income minus income tax expense.	To show the company's total profit after all expenses, including taxes, have been deducted.	Pre-Tax Income - Income Tax Expense
Earnings Per Share (EPS)	Net income divided by the number of outstanding shares.	To show the profitability on a per-share basis.	Net Income / Outstanding Shares

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

Common Questions You May Have

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What are the key components to include in a 3-year income statement?

The key components of a 3-year income statement include revenue, cost of goods sold (COGS), and operating expenses.

Additionally, you should include other income, interest expenses, and taxes to get a comprehensive view of your financial performance.

Finally, ensure to calculate the net income for each year to understand your profitability over the period.

How do you project revenue for the next three years?

To project revenue, start by analyzing historical sales data and identifying trends and growth rates.

Consider market conditions, industry benchmarks, and any planned business expansions or new product launches.

Typically, businesses aim for a revenue growth rate of 5% to 10% annually, but this can vary based on your specific circumstances.

What is a reasonable percentage for operating expenses relative to revenue?

Operating expenses typically range from 20% to 30% of revenue for most businesses.

This percentage can vary depending on the industry and the efficiency of your operations.

Regularly review and adjust your operating expenses to ensure they align with your revenue projections.

How can you estimate the cost of goods sold (COGS) for future years?

Estimate COGS by analyzing past data and considering any changes in supplier costs, production methods, or material prices.

Typically, COGS is 50% to 70% of revenue for many businesses, but this can vary widely by industry.

Adjust your estimates based on expected changes in your business operations or market conditions.

What tools can help simplify the creation of a 3-year income statement?

Spreadsheet software like Microsoft Excel or Google Sheets can be very useful for creating and managing income statements.

Accounting software such as QuickBooks or Xero can automate many aspects of financial reporting and projections.

Consider using financial modeling templates that are specifically designed for multi-year income statements to save time and reduce errors.

How do you account for taxes in a 3-year income statement?

Estimate your tax liability based on your projected taxable income and the current tax rates applicable to your business.

Include both federal and state taxes, and consider any tax credits or deductions you may be eligible for.

Typically, businesses set aside 20% to 30% of their net income for taxes, but this can vary based on your specific tax situation.

What is the importance of sensitivity analysis in a 3-year income statement?

Sensitivity analysis helps you understand how changes in key assumptions, such as sales growth or cost increases, impact your financial projections.

It allows you to identify potential risks and develop strategies to mitigate them.

By performing sensitivity analysis, you can create more robust and flexible financial plans that can adapt to different scenarios.