Project Overview:
When it comes managing a business’s finances, evaluation is a constant factor. Regardless of how optimistic your company’s projections are, or how well the business appears to be doing based on sales numbers and customer reviews, occasionally you need to step back and look for the truth in the numbers. That’s where income statements come into play.
Your income statement is a financial document that summarizes all of your company’s income and expenses over a given period. This includes all gains, expenses, and losses of revenue. The purpose of an income statement is not only to give you a better understanding of your company’s financial health, but also to help you make crucial decisions about the future of your business.
For this project part, you will examine the operational budget your team developed and use that information produce three separate income statements for the first year of your company’s operation. These statements should match the following scenarios:
One scenario in which your company’s performance matched what you predicted in your pro forma and original budget (100%)
One in which your company out-performed your predictions by generating 15 percent more sales than expected (115%)
One in which your company fell short, generating only 75 percent of its projected revenue (75%).
Income statements aren’t just for internal stakeholders, however. They are often shared quarterly or annual reports, meaning your investors will also be hands on with this information.
To account for this, once your income statements are prepared, write a brief rationale for each income statement that answers the following questions for your investors:
For 100%: “How do you plan to scale and grow this business moving forward?”
For 115%: “How can we continue to improve the company’s performance?”
For 75%: “What is the positive—why should we continue to invest?”
Note that, of all three questions, the last is arguably the most important. Working with investors is largely a process of managing expectations and generating results. Obviously you cannot misrepresent the truth or alter your books in any way after falling short; however, to keep investors onboard, you do need to be able to reassure them that you have a plan to course correct and respect their investment.
Procedure:
Using your operational budget as a guide, develop three separate income statements that match the following projections for your first year of business:
100% on target
115% of the target
75% of the target.
Create your income statements in separate Microsoft Excel documents and make sure to label them accordingly.
Write a brief rationale (1-2 paragraphs) for each scenario that answers the following questions:
(For 100%) “How do you plan to scale and grow this business moving forward?”
(For 115%) “How can we continue to improve the company’s performance?”
(For 75%) “What is the positive—why should we continue to invest?”
Combine your three rationale statements into a single Microsoft Word document and attach it along with your three separate income statements to the Submission area below.