Report name: Sample Forecast
How the Profit and Loss Forecast is Calculated
This is the profit and loss forecast Figurewizard produces from your sales, margin, overheads and investment figures. It is a working example you can edit
This is the profit and loss forecast Figurewizard produces from your sales, margin, overheads and investment figures. It is a working example you can edit
| forecast for year beginning the 1st. | May 2017 | May 2018 | May 2019 |
| Sales | 1,500,000 | 1,650,000 | 2,200,000 |
| add: Delivery / Service Charges | 37,500 | 41,250 | 55,000 |
| Total Sales | 1,537,500 | 1,691,250 | 2,255,000 |
| less: Cost of Goods Sold | 885,000 | 973,500 | 1,298,000 |
| Gross Profit Cfwd | 652,500 | 717,750 | 957,000 |
| Wages NI and Pensions | 300,000 | 310,000 | 330,000 |
| Administrative Overheads | 105,800 | 127,200 | 145,500 |
| Selling Overheads | 136,381 | 156,500 | 203,567 |
| Depreciation | 10,876 | 17,543 | 20,290 |
| Operating Overheads and Expenses | 553,057 | 611,243 | 699,357 |
Operating Profit | 99,443 | 106,507 | 257,643 |
| less: Interest Charges | 5,062 | 7,469 | 5,394 |
| add: Exceptional Item (Profit on Asset Sales) | 0 | 0 | 0 |
Pre-Tax Profit for the Year | 94,381 | 99,038 | 252,249 |
| less: Corporation Tax | 13,613 | 18,495 | 47,077 |
| Net Profit Cfwd | 80,768 | 80,543 | 205,172 |
| Corporation Tax % of Pre Tax Profit | 14.4% | 18.7% | 18.7% |
The two key components of this profit and loss forecast are operating profit from core trading and net profit (net income) attributable to shareholders.
They are produced by Figurewizard simply using your own predicted figures for sales, gross profit margin, overheads and so on plus a few simple ratios. The system then does all of the work to arrive at this all of the rest of the forecasts, including automatically calculating and applying VAT and corporation tax.
Net income arising from core trading activity (operations) defines operating profit, making it the key profit forecast when planning as a going concern.
Sales include add-ons such as delivery or service charges. When using figurewizard, simply enter that as a percentage of your trade sales. Overheads and expenses directly attributable to trading activity are then deducted to arrive at the operating profit.
Operating profit is the engine that drives the liquidity and cash flow of any business, which is why it matters for any business plan. Banks, creditors and potential investors will pay close attention to your operating profit forecast.
Profits (or losses) from the sale of fixed assets or income from investments are "exceptional items" unconnected with core trading activity, so are not added to the profit and loss or net income forecast until after operating profit has been calculated.
In this example, forecast overheads include fixed overheads of £130,000 and wages of £300,000, a total of £430,000. Reducing these using the What-If Calculator will dramatically improve both profits and cash.
| 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 |
In this example the What-If calculator is again used to reduce fixed overheads are reduced but this time with reductions of 0.25% added to the % of sales for the cost of shipping orders and providing for bad debts.
| 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 |
To arrive at an HMRC compliant taxable profit forecast the pre-tax profit forecast is adjusted, for example by substituting capital allowances for depreciation.
Provisions such as for bad debts are also added back, as are charges to profit and loss that are not regarded as having been incurred in trading. In addition, entertainment expenses are also added back.
How this is calculated can be viewed in the Corporation Tax sample forecast.
Although chargeable to profit and loss, HMRC do not generally accept entertainment expenses as being tax deductible. They are also subject to complex rules. For example:
Entertaining Business Clients – Where the entertainment is accepted as a forum for discussing business deals. Not regarded as a benefit in kind.
Any Other Entertainment – Where HMRC does not regard the entertainment charge as appropriate for business dealings a personal and taxable benefit in kind can be created.
Auditors have a duty to report these factors when assessing the company's taxable profit.
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 tax-deductible charge to both forecast net profit and forecast taxable profit but because they are solely concerned with servicing external debt they are not chargeable until after operating profit has been calculated.
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.
Profits in a business plan depend on an uninterrupted supply of goods and services, delivered 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 consequences for your 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 plus a few simple ratios.
Beyond those figures no further intervention is called for as everything, including VAT transactions and corporation tax which are calculated and applied to the forecasts using nothing more than the information you have provided.