This is a Working Example of our Forecasts
Registered users can produce their own business forecasts in minutes; exactly as is shown here.

Report name: Sample Forecast

How the Profit and Loss Forecast is Calculated

This working example shows how an operating, pre-tax and net profit forecast is calculated and displayed by Figurewizard.

forecast for year beginning the 1st.May 2017May 2018May 2019
 Sales1,500,0001,650,0002,200,000
 add: Delivery / Service Charges37,50041,25055,000
 Total Sales1,537,5001,691,2502,255,000
 less: Cost of Goods Sold885,000973,5001,298,000
 Gross Profit Cfwd652,500717,750957,000
    
 Wages NI and Pensions300,000310,000330,000
 Administrative Overheads105,800127,200145,500
 Selling Overheads136,381156,500203,567
 Depreciation10,87617,54320,290
 Operating Overheads and Expenses553,057611,243699,357
    
 

Operating Profit

99,443106,507257,643
 less: Interest Charges5,0627,4695,394
 add: Exceptional Item (Profit on Asset Sales)000
 

Pre-Tax Profit for the Year

94,38199,038252,249
 less: Corporation Tax13,61318,49546,671
 Net Profit Cfwd80,76880,543205,578
    
 Corporation Tax % of Pre Tax Profit14.4%18.7%18.5%

The Pathway Towards Profit and Loss

Gross profit, operating profit, pre-tax profit and net profit (also known as net income) describe the four steps towards reporting the profit performance of a business.

All four are important but the one that matters the most is the operating profit forecast, describing as it does profits that are expected to arise from core trading activity (operations) and nothing else.

As income from investments or from the sale of fixed assets are not connected to operations theese are not added to the profit and loss forecast until after the operating profit forecast has been calculated.

Planning Profits - Cash Flow Deficits

Everything about profits displayed in your business plan will depend on an uninterrupted supply of goods and services as and when they are needed.

Nothing is more likely to create such interruptions than cash flow deficits. Even a single month's shortage of cash can result in interruptions to supply, a loss of confidence among suppliers and serious negative consequences for your profit forecast.

 Planning Profits - Fixed Overheads

Eliminating forecast cash flow deficits usually starts with reducing oveheads. In this sample forecast fixed overheads (rent, advertising etc.) are 130,000 and forecast wages 300,000, a total of 430,000.

Using our What-If calculator to reduce fixed overheads and wages each by stages of 5% and 10% respectively, pre-tax profit, liquidity, cash flow and the bank will improve as follows.

Year 1 less: Fixed OH + Wages Pre - Tax Profits Working Capital (Liquidity) Operating Cash Flow Bank: Year End
0% 430,000 94,381 63,022 12,208 -35,439
5% 408,500 116,779 81,165 33,488 -13,261
10% 387,000 138,712 98,931 54,768 8,452

Planning Profits - Variable and Fixed Overheads

For most businesses the two most important variable overheads are the costs of shipping orders (carriage out) and bad debts.

These are set in this forecast as 4% and 3% of sales. Again reducing each of these two in stages of 0.25% as fixed overheads and wages reduce by 5%, means forecast profit, liquidity and cash now look like this.

Shipping and Bad Debts Fixed OH + Wages Pre - Tax Profits Working Capital (Liquidity) Operating Cash Flow Bank: Year-End
7.0% 430,000 94,381 63,022 12,208 -35,439
6.5% 408,500 124,514 87,430 40,896 -5,698
6.0% 387,000 154,015 111,326 69,584 23,410


These examples of improving profits, liquidity, cash and debt using the What-If Calculator may appear to be remarkable but for any business that gets its budgets and therefore its forecasts right and rigorously implements them, they are entirely feasible.

Financial Fees and Interest Charges

Fees associated with financing such as bank, charge card or invoice financing service charges are chargeable to operating profit: Interest charges are not.

Interest charges are a legitimate tax-deductible charge to both the forecast net profit and the foreast taxable profit but as they are solely concerned with servicing external debt / financing as opposed to trading operations, they only apply once the operating profit has been calculated.

How Taxable Profits are Calculated

Net pre-tax profit only serves as the basis for the calculation of the forecast taxable profit. HMRC then require it to be adjusted to take account of capital allowances and non-deductible overheads.

In the UK the substitution of capital allowances for depreciation of fixed assets is usually the principal adjustment when calculating the taxable profit. Entertainment expenses, fines and provisions are not tax deductible however: These will be added to taxable.

Marginal relief for net profit (net income) below £1.5 million no longer applies as the standard corporation tax rate is now the same for profits of all sizes.

Taxed Profits and Equity

Retained profits after tax is that which is available for distribution of dividends. It is variously referred to in the balance sheet as reserves or shareholders funds forming part of the equity or net worth of the company.

Working with this Profit Forecast

What you see here is an example of Figurewizard's profit and loss forecast. It is automatically created by our system using nothing but your own forecast figures for sales, margin, overheads and investment.

Beyond those figures no further intervention is called for as everything, including VAT transactions and corporation tax are calculated and applied to all forecasts simply from those figures you will have provided.

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